Macquarie International Infrastructure Fund

[Nick]

technically, they can keep refinancing loans since their assets are not concession based but this boils down to ability to find new credit at attractive rates.

Not sure if I understand correctly about your statement on concession, but for HNE, refer to Pg5 of Macquarie presentations,

Exclusive tolling rights for 27 years from 1999 (expiring in 2026)

Have not found anything to suggest that CXP is on concession, though, after checking their official site and PUC site (another stake holder). IIRC, for HPH Trust, they operate their China ports under concession. The only reason I can think of for CXP not being operated under concession, is the local govt is also a stake holder.

As for TBC, I'm at the moment assuming they're also not on concession, much like SCV (?).

I am only talking about TBC since their dividend growth is being financed by cash-flow freed via loan refinancing.

HNE and TBC are concession assets and they are repaying debt annually. Though HNE amortization is ballooning so unless EBITDA grows with it, the dividends will fall.

[weijian]

Here is some additional information on the "concession" question bought up:

2 assets HAVE concessions. The end dates are below:
CXP: 2044
HNE: 2026
TBC: No concession but license needs to be renewed every 9yrs (next renewal in 2016/2017).

Source: MIIF factsheet (Which you can find from the website)

[Nick]

Here is some additional information on the "concession" question bought up:

2 assets HAVE concessions. The end dates are below:
CXP: 2044
HNE: 2026
TBC: No concession but license needs to be renewed every 9yrs (next renewal in 2016/2017).

Source: MIIF factsheet (Which you can find from the website)

This guy is the weakest asset of the whole lot. Heavy debts, growth might be reversed with toll rate reductions, huge debt with balloon amortization.

Maybe, if they are lucky, the Govt will repurchase it like Yuyao Highway in the case of CM Pacific in Jan 2012.

I am not very comfortable with MIIF's gearing or their repayment plans. Perhaps CXP is the strongest in terms of capital but I am guessing that is because Pan United is running the show ?

http://yieldstocks.reitdata.com/2012/05/...mfraser-3/ [Amfraser Report 10 May 2012]

[weijian]

From now till 2014, perhaps we can expect TBC to pay out the bulk of their EBITDA to MIIF as dividends

From what i understand in the last results briefing, businesses in China (and Taiwan) can only pay dividends out of NET profits. Do take a look at the factsheet and the dividend distributions from HNE/CXP track that of net profit, not EBITDA.

Another note on financial engineering, MIIF gets around the restriction (of paying out from net profits only), by milking more cash out of TBC via 'shareholder loans and notes'.
(C'mon, these are Australia's best bankers, sure they can do better than just the "plain vanilla" re-financing right?! )

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This guy is the weakest asset of the whole lot. Heavy debts, growth might be reversed with toll rate reductions, huge debt with balloon amortization.

Maybe, if they are lucky, the Govt will repurchase it like Yuyao Highway in the case of CM Pacific in Jan 2012.

I am not very comfortable with MIIF's gearing or their repayment plans. Perhaps CXP is the strongest in terms of capital but I am guessing that is because Pan United is running the show ?

http://yieldstocks.reitdata.com/2012/05/...mfraser-3/ [Amfraser Report 10 May 2012]

Hi Nick,
I agree with your assessment that HNE is the weakest link - whether is it profit generation or loan repayment profile. I remember some analyst report claiming it is the 'crown jewel' in the portfolio when it was first purchased in 2007.
Mgt has also applied some new financial engineering with HNE by 'backloading' the depreciation as well (rather than straight line, it is now based on 'usage' - i am not sure how it will be calculated though)
In this way, they can get more cash out of HNE FASTER (since dividends paid out based on net profit, not EBITDA)

I will not bet on the same re-purchase plan happening here (like CM Pacific), simply because HNE is not SOE owned. I suspect that the current talks with the Guangdong gov on rates standardization, will have an ending where HNE reduces rates and getting some compensation.

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From the circular, the TBC debt before 'optimization' already has a ballooning debt repayment profile, significantly increasing in 2017. The 'optimization' makes it even more pronounced. Financial engineering X 2.

Make it 3x!
MIIF is trying to get TBC's debt to be refinanced by 4Q2013 to reduce the amortization from 2014 onwards (so do expect the bullet facility to be shifted backwards from 2017 again, most probaby once they get the license renewed for another 9years)

[KopiKat]

I am only talking about TBC since their dividend growth is being financed by cash-flow freed via loan refinancing.

HNE and TBC are concession assets and they are repaying debt annually. Though HNE amortization is ballooning so unless EBITDA grows with it, the dividends will fall.

Thx for the clarifications!

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From now till 2014, perhaps we can expect TBC to pay out the bulk of their EBITDA to MIIF as dividends

From what i understand in the last results briefing, businesses in China (and Taiwan) can only pay dividends out of NET profits. Do take a look at the factsheet and the dividend distributions from HNE/CXP track that of net profit, not EBITDA.

Thx! I'll take a look at the fact sheet. I actually looked all over their site but skipped the fact sheet.. Sheez...

Fact Book Link

As for the EBITDA part, I was actually taking a dig at the 'I' part ie. zero or minimal 'I' due to 'Optimization' till 2014 (thus higher DPU for all). But, of course you're gonna point out that the bulk of the repayment is actually Capital Repayment, not 'I'.

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The 2 recent analysts' reports from remisier.org,

DBSV
AmFraser

[weijian]

MIIF announces that HNE will have to follow the standardized toll rates at Guangdong region from 1st June 2012:

(1) Mgt expects 20-25% revenue reduction.
(2) Maintains 1H2012's dividend payout.
(3) In discussion with the authorities (compensation?) before revision of HNE's valuation and dividend guidance.

http://info.sgx.com/webcorannc.nsf/Annou...endocument

Since HNE contributes to ~35% of annual dividend, a rough estimate of the impact on dividend payout will be ~10% reduction (ie. 0.5cts)

(vested)

[KopiKat]

MIIF announces that HNE will have to follow the standardized toll rates at Guangdong region from 1st June 2012:

(1) Mgt expects 20-25% revenue reduction.
(2) Maintains 1H2012's dividend payout.
(3) In discussion with the authorities (compensation?) before revision of HNE's valuation and dividend guidance.

http://info.sgx.com/webcorannc.nsf/Annou...endocument

Since HNE contributes to ~35% of annual dividend, a rough estimate of the impact on dividend payout will be ~10% reduction (ie. 0.5cts)

(vested)

Some extracts from their Fact Book on HNE,

<Pg 34>
- Phase I: 15.6 kilometres long with eight lanes.
- Phase II: connects Phase I to the north and is 15.3 kilometres long with six to eight lanes.

<Pg 42>
- Opening of Phase II on Q209 seems to have only increased Revenue by < ~30% (could be more as overall revenue impacted by closure of Northern Ring road).


From SGX Annc,

The notification states that toll roads with six or more lanes such as HNE are instructed to charge tolls based on a rate of RMB0.60/km. As a result, the toll rate for HNE Phase 1 will be reduced from an average rate of RMB0.75/km to RMB0.60/km. The toll on HNE Phase 2 will not be affected as it currently charges a rate of RMB0.60/km.

The notification also requires a change in the methodology used to calculate the length of slip roads1. The change effectively reduces the toll-able distance of slip roads and will affect both HNE Phase 1 and Phase 2.

The tolling revisions will have an adverse impact on HNE, with revenues estimated to be reduced by approximately 20 to 25 per cent based on current traffic levels.

The average rate reduction from RMB0.75/km to RMB0.60/km is -20%.

Since it affects only Phase I (the unaffected Phase II is of almost equal length) and by ~20%, the overall estimated impact of 20% - 25% in Revenue to HNE seems very huge. Unless.. the tollable Slips Roads must be a lot longer than I imagined it to be or there are other factors I have not found!

[shanrui_91]

Some extracts from their Fact Book on HNE,

<Pg 34>
- Phase I: 15.6 kilometres long with eight lanes.
- Phase II: connects Phase I to the north and is 15.3 kilometres long with six to eight lanes.

<Pg 42>
- Opening of Phase II on Q209 seems to have only increased Revenue by < ~30% (could be more as overall revenue impacted by closure of Northern Ring road).


From SGX Annc,

The notification states that toll roads with six or more lanes such as HNE are instructed to charge tolls based on a rate of RMB0.60/km. As a result, the toll rate for HNE Phase 1 will be reduced from an average rate of RMB0.75/km to RMB0.60/km. The toll on HNE Phase 2 will not be affected as it currently charges a rate of RMB0.60/km.

The notification also requires a change in the methodology used to calculate the length of slip roads1. The change effectively reduces the toll-able distance of slip roads and will affect both HNE Phase 1 and Phase 2.

The tolling revisions will have an adverse impact on HNE, with revenues estimated to be reduced by approximately 20 to 25 per cent based on current traffic levels.

The average rate reduction from RMB0.75/km to RMB0.60/km is -20%.

Since it affects only Phase I (the unaffected Phase II is of almost equal length) and by ~20%, the overall estimated impact of 20% - 25% in Revenue to HNE seems very huge. Unless.. the tollable Slips Roads must be a lot longer than I imagined it to be or there are other factors I have not found!

the extra 10-15% should come from here:
"The notification also requires a change in the methodology used to calculate the length of slip roads1. The change effectively reduces the toll-able distance of slip roads and will affect both HNE Phase 1 and Phase 2."

double whammy

[KopiKat]

The average rate reduction from RMB0.75/km to RMB0.60/km is -20%.

Since it affects only Phase I (the unaffected Phase II is of almost equal length) and by ~20%, the overall estimated impact of 20% - 25% in Revenue to HNE seems very huge. Unless.. the tollable Slips Roads must be a lot longer than I imagined it to be or there are other factors I have not found!

the extra 10-15% should come from here:
"The notification also requires a change in the methodology used to calculate the length of slip roads1. The change effectively reduces the toll-able distance of slip roads and will affect both HNE Phase 1 and Phase 2."

double whammy

That's why I said the Slip Roads must be very very long to have such a huge impact! Note that it's just a difference in methodology in calculating the length of the Slip Roads. So, unless MIIF had over-calculated the length by a significant amount and these Slip Roads are also a significant length vs the actual Expressway, I'm still amazed by the huge impact!

[Nick]

The key question is how much cash compensation can they receive from the Provincial Government ? If not, I suspect distributions from HNE to remain weak over a period of years as its EBITDA will probably take 3 years (assuming 6-7% growth) to recover to FY 2011 level. In the meanwhile, debt amortization would have increased significantly resulting in a huge drop in distributions. Let's not forget that tax rate doubles in FY 2012 to 24% so its a triple whammy to NPAT this year. If cash compensation is granted, it could be used to amortize the debt in advance so it will minimize the damage to the distribution. We have to wait and see how it pans out.

(Not Vested)