MIIF – AmFraser
Unearthing the treasure chest
Unearthing the treasure chest. Macquarie International Infrastructure Fund (MIIF) has concluded its strategic review on December 18 2012 with a decision to divest its assets namely Taiwan Broadband Communications (TBC), Changshu Xinghua Port (CXP), Hua Nan Expressway (HNE) and Miaoli Wind Company (MWC), as well as return excess existing cash to shareholders. The divestment of the assets is likely to take 12‐18 months.
We expect a one‐off special dividend of 4.03 cents per share, on top of a regular dividend of 2.75 cents per share, to be distributed in February 2013. Excess cash available for distributions should amount to approximately S$46.4mil.
Current valuations for MIIF’s assets are certainly not demanding, with CXP, HNE and TBC valued at S$101.6mil, S$140.2mil and S$492.8mil respectively. We believe MIIF is unlikely to face significant difficulties in offloading its assets at current valuations and could potentially realise a slight premium over its current valuations, given the yield‐hungry climate and the assets’ strong cash flow generation. The recent deals of Taiwanese cable TV operators Kbro and China Network Systems were completed at EV/EBITDA multiples of 11‐12 times, which could serve as a benchmark for TBC’s valuation. TBC has a EV/EBITDA multiple of 10x.
Regulatory risk already factored into HNE’s valuation. MIIF has already written down the book value of HNE by S$75.8mil to factor in the impact of recent toll adjustments. We are therefore comfortable that HNE’s current valuation could serve as a good proxy to its future sale price.
A cash windfall. Based on the current book value of its assets, we estimate that MIIF’s asset divestments would generate distributable income of 63.2 cents after factoring in management fees. In our opinion, the variable portion of the management fees is likely to be structured as a percentage of the asset sale prices in order to keep management’s interests better aligned with those of shareholders’. We assume that variable management fees would represent 1% of the asset sale prices.
We raise our fair value for MIIF to 70.0 cents per share from 68 cents, and may make further adjustments pending further visibility on asset divestment plans.