MIIF – AmFraser
Divesting its crown jewel TBC
Divestment of crown jewel Taiwan Broadband Communications (TBC). Macquarie International Infrastructure Fund (MIIF) has proposed the divestment of its 47.5% stake in TBC to a new SGX‐ST listed business trust Asian Pay Television Trust (APTT). According to MIIF, APPT has obtained a letter of eligibility‐to‐list from SGX and is targeting an initial public offering (IPO) by end May pending shareholders’ approval. Under the proposed divestment, shareholders could elect to receive their proportionate share of the MIIF APPT units or elect to receive their entitlement in cash based on APPT’s IPO price.
Equity listing of TBC more value‐enhancing for Unitholders. MIIF’s decision to pursue an equity listing for TBC is an opportunistic move amid investors’ avid hunting for yields. Over the past 18 months, MIIF has received unsolicited trade offers for TBC, which were below the minimum valuation of S$469.5mil. The minimum valuation for TBC is set at 95% of its book value and has taken into consideration all transaction costs in relation to the IPO listing.
Shareholders who wish to invest in APTT could remain vested in MIIF and receive their proportional share of APTT units. TBC’s yield is estimated to be around 9.3%, which is enticing considering the average 5‐6% yields among S‐REITs and business trusts at present. A fair value yield of 8% will imply potential upside of 16% respectively for APTT’s Unitholders, assuming that the IPO is priced at book.
Downgrade to HOLD on limited capital upside. Alternatively, for investors who do not wish to take a stake in APTT, we believe the recent appreciation in MIIF’s share price could present an opportunity for Unitholders to sell into strength and switch into other high‐yield plays with better prospects for growth. Our top pick under our coverage is Hutchison Port Holdings Trust (BUY, FV: $0.955) that boasts a forward yield of 7.2‐8.1%. Moreover, we note that there remain uncertainties surrounding the divestiture plans for the remaining assets (remaining divestments could take between 12‐18 months).
We lower our fair value to S$0.590 after taking into account MIIF’s distributions in Q113 and the expenses incurred in relation to its proposed divestiture of TBC. This represents a potential capital upside of only 1.4% over its current share price.
According to MIIF, it will maintain its policy of distributing its free cash flow to its Unitholders semi‐annually. We project its FY14 forward yield at 9.2% following its divestment of TBC, and this translates into a total return of 10.6%.