Why MIIF decided against rights issue

Shareholders raise concern about European asset sale

MACQUARIE International Infrastructure Fund (MIIF) did consider a rights issue to pay for its Asian assets instead of selling its European assets, the fund’s chairman John Roberts said yesterday.

But it decided a rights issue was not in the best interest of the fund or its shareholders, he told shareholders concerned by the fund’s switching from stable mature infrastructure holdings to buying assets in Asia’s high-growth but more volatile economies.

About 120 MIIF shareholders turned up yesterday at a special meeting to vote on a proposal to sell the fund’s 3.2 per cent interest in Brussels Airport and a 100 per cent interest in German oil tank storage business TanQuid.

Shareholders also voted on a proposal to receive their dividends in scrip.

The proceeds from the European sales will help finance the purchase of an 81 per cent stake in Hua Nan Expressway in Guangdong, China for about four billion yuan (S$778.7 million), MIIF’s first toll road investment in the world’s fastest-growing major economy.

One shareholder cautioned about investing in Guangdong given his own personal ‘difficult’ experience.

Another shareholder wondered if MIIF could have raised funds from the market through a rights issue instead of selling its stake in Brussels Airport.

Others asked about the pricing of the assets to be divested, given no tender was called and the buyers are Macquarie-related entities. They also noted that the two assets to be sold have given high returns of 9.2 per cent and 16 per cent.

Mr Roberts said that the returns from Hua Nan will be very strong, that he is confident MIIF will maintain and grow distributions consistently and that the acquisition is expected to be value-accretive.

He said the prices of the businesses to be sold exceed their book value and will contribute to a healthy internal rate of return.

The board did consider going to the market to raise funds for its Asian investment strategy, but decided this was not the time to do so, he said.

‘We felt that if we were to embark on public capital raising, when you included the costs of underwriting fees, issuing prospectuses, and a discount to the current market in order to attract the capital, that it was likely we would be issuing shares that would be probably closed to $1 type of price,’ he told shareholders. ‘We would be more comfortable seeing the share price appreciate a bit higher before we come back to the market.’

The board is ‘very protective of the share price’, he said.

MIIF was listed in May 2005 at $1 a share, which raised $800 million. A secondary exercise six months later in November at 96 cents a share brought in another $435 million.

The stock closed four cents lower at $1.04 yesterday.

Including this week’s purchase of Hua Nan Expressway, Asian assets now make up 35.8 per cent of MIIF’s portfolio, versus zero when it listed in 2005.

Mr Roberts assured shareholders that Hua Nan has a track record of paying distributions to shareholders since it was opened in 1999.

Use of the expressway has grown 13.7 per cent a year and currently some 37,000 cars use it, said Gavin Kerr, managing director of MIIF’s manager.

Shareholders passed all resolutions yesterday.

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