MIIF sells Europe-fund stake for $132m

MACQUARIE International Infrastructure Fund Limited (MIIF) has agreed to sell 71.6 per cent of its interest or a 4.5 per cent stake in Macquarie European Infrastructure Fund (MEIF) to a number of investors for $132 million.

MIIF said yesterday that it would use the proceeds to repay $19 million in debt and retain the rest ‘to provide balance sheet flexibility for the fund’. MIIF said that it acquired the interest in MEIF in June 2005 for $139.5 million and has received proportionate distributions of $35.3 million from the investment. — Reuters

MIIF Q1 profit more than doubles to $23.4m

MACQUARIE International Infrastructure Fund (MIIF) yesterday reported a net profit attributable to equity holders of $23.4 million for the first quarter ended March 31, 2009 – more than twice the $9.2 million figure a year ago.

The increased takings resulted from higher investment income, a higher foreign exchange gain and lower operating expenses.

‘We have seen markets, especially for our patronage assets in China and Europe, worsen through the start of 2009,’ said the CEO of MIIF’s manager, John Stuart.

The amount of debt held in some of MIIF’s businesses may be unsustainable amid tight European debt markets, and these businesses may have to tackle the situation in the short term, he said. ‘As a result, we are likely to see some pressure on MIIF’s investment income over the remainder of the year.’

MIIF amended its dividend policy late last year, retaining surplus cash to repay corporate-level debt. It said it hoped to fully repay this debt by end-2009.

In Q1, however, standalone company borrowings rose from $20 million at Dec 31, 2008 to $50.1 million at March 31. The increase was largely due to a temporary $30 million drawdown for MIIF’s 2008 final dividend and an equity investment.

At April 30, 2009, the borrowings stood at $35 million. MIIF expects this to fall when it receives distributions from its Chinese port and expressway businesses in Q3 2009.

‘If debt markets remain challenging, it may be necessary for borrowing levels within certain businesses to be reduced,’ MIIF said. If these businesses amortise certain debt facilities ahead of maturity, ‘receipts from the underlying businesses would be reduced with a commensurate effect on MIIF’s ability to make distributions to shareholders’.

MIIF units lost two cents yesterday to close at 38.5 cents.

MIIF cuts dividend to pay off debts

MACQUARIE International Infrastructure Fund (MIIF) will cut its dividend and use any surplus cash to repay its debts completely by end-2009 in a bid to shore up its battered share price, its fund manager said yesterday. From now on, MIIF will exclude gains on investment disposals from its twice-yearly ordinary dividend, which will be paid only out of regular operating income from its businesses.

Any extra cash will be used to repay unsecured debt, which is expected to reach $60 million next year, MIIF said. This will remove any refinancing risk associated with its corporate debt. MIIF’s shares have plunged 61.4 per cent this year, dragged down by worries over its level of debt. They traded at 38 cents apiece yesterday.

MIIF’s manager said the fund’s unsecured corporate borrowings stood at $27.5 million at end-September and are expected to reach $60 million next year as it draws further on loan facilities to fund investment and working capital needs. The facilities expire in 2011. ‘While MIIF’s corporate facilities have a remaining tenor of three years, we consider the early repayment of corporate borrowings a prudent course of action in the current market,’ said Gavin Kerr, managing director of MIIF’s manager.

As a group, including portfolio companies, MIIF had borrowings of $123.2 million at end-September, including $89.1 million of long-term debt. The fund reported a net loss of $91.4 million for the three months to end-September, plunging deep into the red due to $80.7 million in losses on the fair value of its financial assets during the quarter. A year earlier, MIIF made a net profit of $64.8 million, boosted by fair-value gains of $77.1 million. Net income adjusted to show the earnings out of which future dividends will be paid grew to $51.2 million for the quarter, from $17.4 million a year earlier.

The adjusted net income excludes changes in the value of MIIF’s financial assets, which the fund says do not affect its cash flow or ability to pay dividends for the period. With the new dividend policy, adjusted net income now also excludes gains or losses from the disposal of investments. Mr Kerr said the fund’s infrastructure businesses ‘continue to perform solidly’ and are expected to continue generating reliable cash flows. The fund’s recent share price performance ‘has been disappointing’, he added. ‘While this is primarily a consequence of external factors beyond MIIF’s control, the board and management have developed a range of initiatives to address this share price under-performance.’

MIIF said it expects to pay shareholders a dividend of three cents a share for the six months to end-December, down from 4.25 cents for the half-year to end-June and the lowest dividend payout since end-2005. Recurrent operating income from MIIF’s businesses will continue to be distributed to shareholders. If capital management initiatives result in additional cash flows, ‘MIIF will determine, at that time, whether to fund a special dividend to share holders or buy back shares’, it said.

Macquarie group hit hard on downgrade

SHARES in Macquarie Group were smashed yesterday after UBS downgraded the stock to neutral, predicting that a sustained downturn would put “substantial pressure” on the investment bank.

UBS targeted two main areas of vulnerability — Macquarie’s capital levels, as well as the ability of its asset-recycling business model to continue generating strong revenue as asset prices fell.

“Although we believe Macquarie is a strong franchise with strong, diverse businesses, a sustained downturn will place substantial pressure on its

operations,” analyst Jonathan Mott said.

In the stock’s biggest fall since January, shares in Macquarie slumped $4.44, or 9.6 per cent, to a four-year low of $41.61, as the bearish mood infected the satellite funds.

Macquarie Airports shed 14c, or 4.4 per cent, to $3.07, and Macquarie Infrastructure Group gave up 11c, or 4.9 per cent, to $2.12.

In his report, Mr Mott noted Macquarie had $7.1 billion of equity investments and assets held for sale on its balance sheet — equal to 70 per cent of shareholders’ funds.

Significant impairment charges were unlikely in the current half, he said, given the bank’s recent commentary that there were “no material concerns with carrying values”.

However, valuations could come under pressure if prices continued to fall. “Additionally, given equity accounting of a number of these positions, if the boards of these associates chose to write down asset values, it will be proportionally recognised by Macquarie,” Mr Mott said.

“This is consistent with many of the write-downs recently announced by Babcock & Brown.”

At the very least, he said, it was unlikely that Macquarie could repeat the 20 per cent of total revenue it generated from investment disposals in 2007, or even the 12 per cent of last year’s revenue.

Mr Mott also said that, while Macquarie was adequately capitalised, it had less flexibility than widely perceived.

The group has previously said it had about $3 billion capital in excess of its minimum requirements, including $2 billion in Macquarie Bank and $1 billion in the non-banking operations.

But UBS said the minimum was not an appropriate benchmark in a global environment of de-gearing of bank balance sheets.

After adjustments for “more appropriate ratios”, it estimated that group excess capital was closer to $500 million.

“Although we see Macquarie Group as adequately capitalised, we believe there is less flexibility than is widely perceived,” UBS said.

The investment bank downgraded its 2009 profit forecast for Macquarie by 2 per cent to $1.5 billion, and by 10 per cent next year to $1.52 billion.

Switching its recommendation from “buy” to “neutral”, UBS downgraded its 12-month price target from $60 to $48.

But the group was not friendless.

Argo Investments managing director Rob Patterson, holder of a $150 million-plus stake in the country’s biggest home-grown investment bank, said the share market had “completely overreacted” to the UBS report.

“An analyst is entitled to his point of view, but he’s guessing that financial markets won’t be any different next time Macquarie reports (its profit),” he said.

“Sure, Macquarie will struggle to beat 2008 earnings, as it has said.

“But we’re long-term investors and we’re not going to throw the stock out just because it has experienced peak-cycle earnings.”

Source : The Australian