Infrastructure

Supporting critical road infrastructure in Korea through the full investment lifecycle

An important part of the road network in Korea’s second-largest city, Baekyang Tunnel was the first asset in Macquarie Korea Infrastructure Fund’s portfolio to reach concession maturity

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Sector Infrastructure
Sub-sector Transport
Location Korea

Opportunity

In the 1990s, following decades of rapid economic growth, Korea began to face a shortage of critical infrastructure facilities, including road networks in its major cities. Recognising the need for private capital to fund the expansion, the government passed legislation to remove barriers to private sector participation in infrastructure projects and provide new incentives to private investors.1

Around the same time, the Busan municipal government sought to develop a 2.3km commuter tunnel connecting the city’s central business district to Busan Port, residential areas in the city’s northwest, and Gimhae International Airport, and opted to do so via a public-private partnership (PPP).2

Construction of Baekyang Tunnel commenced in July 1993 and was completed in January 1998, with operations starting in April 1999. Baekyang Tunnel Ltd. (BYTL) was granted a 25-year concession to operate and manage the tunnel from January 2000.

Approach

Macquarie Asset Management (MAM) identified an opportunity to expand its PPP concession platform business in Korea by acquiring BYTL as a core infrastructure seed asset. Through Macquarie Korea Infrastructure Fund (MKIF), a listed infrastructure fund in Korea managed by MAM, it acquired 99.2 per cent of equity and senior debt in 2004 and the remaining 0.8 per cent in 2008.3

MKIF was established in 2002 with a mandate to invest in project companies that construct, operate, and manage public-private partnership infrastructure projects in Korea, including toll roads, bridges, tunnels, and ports. It invests through equity and debt and seeks to satisfy the risk appetite of long-term investors.

During its time managing BYTL, MAM supported implementation of safety improvement initiatives, including becoming the first PPP concessionaire to voluntarily change its tunnel light to an LED system to enhance visibility and sustainability. Signalling devices were also installed to warn drivers of drowsiness, and additional lighting was installed at toll booths to help prevent collisions at night.

MAM also supported BYTL’s operational performance by helping it secure competitive terms for operation and maintenance contracts.

Furthermore, it delivered a positive community impact by making vital donations to underprivileged groups and local businesses in areas surrounding the road, and by providing volunteer services to schools and senior care centres. Its efforts to support the surrounding community led to it receiving commendations from Busan municipal government and the media.

Outcome

Over the past 25 years, Baekyang Tunnel has become a critical piece of Busan’s transport infrastructure – providing a fast, cost-effective transport connection linking the city to key residential suburbs and industrial facilities. These include Busan Port, which ranks as the seventh largest container port in the world and handled a throughput of 24.4 million TEUs in 2024.4

Annual average daily traffic on the road is now ~70,000 vehicles5 and it has helped alleviate traffic congestion on other parts of Busan’s transportation network. By reducing the travel distance for daily commuters from 15km to 2.3km, the road has halved the travel time between the central and western parts of the city to 15 minutes, saving users over ~163 million hours in travel time over the course of the 25-year concession.6

By acting as a direct pathway to Busan Port and its associated logistics hubs, Baekyang Tunnel has also played a role in accelerating Korea’s economic growth and in the city becoming one of the leading economic and logistics hubs in Northeast Asia.

In line with its aim of improving the management of workplace health and safety (WHS) risk at its portfolio companies, MAM made a commitment to increasing the safety of the asset as a workplace. Through collaborative efforts with BYTL’s leadership, additional safety capex investment, and sharing of lessons from other assets it manages, MAM played a key role in enhancing the road’s safety standard and WHS culture. 

As one of the early vintage core infrastructure assets invested in by MKIF, BYTL delivered value creation to shareholders and contributed to building MAM’s PPP concession platform business in Korea. At the expiry of the concession in January 2025, the right to operate and manage BYTL transferred to Busan Metropolitan City.

21-year

investment period

~70,000

vehicles daily (annual average daily traffic)6 

653.1 million

total vehicles over the course of the concession period6

~163 million

hours saved for users over the course of the concession period7

“Through Macquarie Korea Infrastructure Fund, Macquarie Asset Management has supported the financing, construction, operation, and maintenance of Baekyang Tunnel – a critical piece of transport infrastructure in Korea’s second-largest city.

“Through combining a long-term perspective with deep sector expertise, we have fulfilled our fiduciary duty to investors by providing a stable income stream, and our social responsibility to the local community through the construction and operation of such a key infrastructure asset.

“MKIF stands as the only infrastructure fund in Korea to have successfully completed the full investment cycle of financing, investing, managing, and returning a PPP infrastructure asset to the public, and we remain committed to supporting the development of key infrastructure projects in Korea.” 

Jason Suh
Head of Macquarie Asset Management Korea

  1. ‘South Korea’s infrastructure prioritisation plan’, Centre for Public Impact, 11 March 2016, 
  2. Public Private Partnership (PPP): A long-term contract between a private party and a government entity, for providing a public asset or service, in which the private party bears operation risk and management responsibility for investment return.
  3. Prior to the Securitisation, MKIF owned 99.2 per cent of equity and loan of BYTL and a third-party institution owned 0.8 per cent of equity and loan of BYTL. MKIF divested its entire holding in BYTL’s loan on 4 January 2008 and acquired additional 0.8 per cent of equity and loan of BYTL from the other shareholder/lender on 8 January 2008, resulting in the current investment structure of BYTL (MKIF owns 100 per cent of equity and 0.8 per cent of loan / ABS SPC owns 99.2 per cent of loan); please refer to MKIF’s disclosure dated 7 January 2008 for more information.
  4. Ministry of Oceans and Fisheries.
  5. Estimation by Baekyang Tunnel Co., Ltd.
  6. As at FY 2024. Baekyang Tunnel Co., Ltd.
  7. Estimation by Baekyang Tunnel Co., Ltd.

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