Martin Lee @ Sg
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MIIF Strategic Review Outcome

Last week, Macquarie International Infrastructure Fund Limited (MIIF) announced the completion of the Strategic Review which was initiated in June 2012.

The Strategic Review, which included an assessment by CIMB Bank Berhad, Singapore Branch (CIMB) and consultation with a cross section of shareholders, generated the following key observations:

  • MIIF’s current share price does not adequately reflect the value of MIIF’s infrastructure businesses;
  • MIIF’s current structure may not be the most appropriate structure to reflect the value of its businesses;
  • Taiwan Broadband Communications (TBC), Changshu Xinghua Port (CXP) and Hua Nan Expressway (HNE) are each generating sustainable cash distributions which underpin their respective values; and
  • Executing MIIF’s stated strategy of investing directly in operating Asian infrastructure businesses is constrained by MIIF’s current share price and the prevailing market environment.

After considering the above observations and assessing the alternatives available to MIIF, the Board has concluded that in order to maximise value for MIIF’s shareholders the strategy for MIIF should change. As a result, the Board has decided to undertake the following initiatives:

  • Distribute existing excess cash to shareholders as a one-off special dividend;
  • Commence a joint process with Macquarie Korea Opportunities Fund (MKOF), MIIF’s TBC co-shareholder, to realise maximum value for their investment in TBC;
  • Pursue the orderly divestments of MIIF’s interests in HNE, CXP and Miaoli Wind;
  • Distribute the proceeds from any divestment to shareholders as soon as practicable; and
  • Allow MIIF’s corporate-level debt facility to lapse upon maturity.

These initiatives have been formulated with a focus on maximising and returning value to MIIF shareholders. The Board will endeavour to execute these initiatives in a timely manner; however, these initiatives involve complex processes which will require active management and prudent actions to safeguard the interests of MIIF shareholders.

The strategy will substantially alter the focus of MIIF. The Independent Directors of the Board have concluded that the change in MIIF’s strategy requires an amended approach to the arrangements with MIIF’s Manager1. The Independent Directors will seek to restructure the Manager’s fee arrangements to realign the interests of MIIF and the Manager.

And so, this fund is finally going to sell off all their assets, return the money to shareholders and close down.

But no kidding me, you need to spend money to appoint a financial adviser to come up with all these recommendations?

While the share price has gone up slightly in anticipation of the higher dividends from the distribution of excess cash, I don’t think the divestment of assets will be easy. Whether they can sell their assets at the valuation they want is a big question mark.

It will probably take a while (a couple of years maybe?) and if they can’t find suitable buyers for any of their assets, the fund will not be able to delist.

In the meantime, the fund will have to continue to pay management fees to Macquarie.

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3 comments
nicholas says 6 years ago

Dear Martin

Thank you so much for sharing with us your thoughts and insights on MIIF. Hope you dont mind I digress a little. I understand both the UOB 5.05 preference share and OCBC 5.1% has a call date in 2013. But am I right to say that if OCBC doesnt call back in 2013 it can redeem during any payment thereafter but if UOB doest redeem in 2013 it will not redeem till another 5 years?

May I ask, in your view, how likely is it that they will redeem it? Thank you so much.

Reply
Jimmy says 6 years ago

Haha such independent advisors are seldom commissioned because of the value of their advice, rather this is usually some form of “cover backside” operation for the independent directors so that in the event of being audited by regulators or questioned by shareholders, they can conveniently push everything to the 3rd party advisors.

In my company, we pay big bucks to some Compensation & Remuneration advisors to come up with pay & bonus recommendations although it is very straight forward. Everytime AGM somebody make noise about the pay, the Directors happily point to the fact that it is based on market best practice as advised by “independent” consultants.

For MIIF, other than CXP which its controlling shareholder PANU might be interested, most of its other assets are probably illiquid. PANU has an upper hand in negotiation as MIIF only has minority beneficial instead of legal interest and this is a big turn off to companies seeking market expansion, synergy or transfer of O&M know-how.

HNE – Adverse regulatory conditions, highly doubtful the book value is accurate. Unsustainable capital structure that will require some entity like CMHP who is able to re-arrange the entire loan portfolio with reasonable costs and take a hit on the cashflow during gestation while loans are being amortized.

TBC – Decent performance with some refinancing risks coming up, should be sellable at fair value if MIIF is patient. The problem with TBC though is that it is a smaller player in Taiwan and currently the telcom market there is not a popular place among big telcos to penetrate. With limited synergies and lack of interest among big telcos, the only plausible buyers are private equities or conglomerates, but then these buyers are going to pay only “fair but not compelling” (thanks to F&N IFAs) price for TBC at best

Miaoli – Should just default on debt and fold up

The alternative is to do a packaged sale of the entire MIIF portfolio, but given the unusual mix of assets, it would be difficult to find a willing buyer.

Reply
    Martin Lee says 6 years ago

    Dear Jimmy,

    I agree with you totally on the “cover backside” portion… Assets will not be easy to divest so I don’t see much that is going to happen for now….

    Reply
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