Macquarie International Infrastructure Fund

[lonewolf]

MIIF just announced its full yr result; and a 3c special dividend on top of the 2.75c dividend.

Press Release
Result
Presentation

(Vested)

[weijian]

MIIF just announced its AGM and also the way that it structures its Mgt Fee.

http://info.sgx.com/webcoranncatth.nsf/V...80062BC4B/$file/MIIFLtrShareholder210213.pdf?openelement

Key Highlights:
(1) 50% reduction in Mgt fees from 1.5% to 0.75% of Net Investible Value --> Based on FY12, this +0.3cts/annum/share of cash to the books.
(2) Does away with Performance Fee --> Does not impact shareholders since it is in ~600mil deficit.
(3) Introduces Threshold Fee (15mil or 1.3cts/share) if sale proceeds = 695mil (60cents/share). Outperformance fees of +10% and +20% of proceeds when between 695mil to 731mil (63.6cents/share) and >731mil respectively.

Thoughts:
- I take issue that the minimum hurdle (threshold fee of 695mil) was justified by benchmarking based on the VWAP of share price BEFORE the strategic review. IMO, it should be taken AFTER the outcome of the strategic review. Why should MIMAL be rewarded before the strategic review, when shareholders have paid CIMB for the strategic review?
- Threshold value (95% of NAV) and Board's valuation (100% of NAV) are fixed. On the positive side, this hedges against downside but caps the upside for incentivising MIMAL. I would prefer a 'WVAP over last X days of market cap' as the hurdle rates, rather than a fixed value.
- Having a general feeling of 'left hand give, right hand take' when MIMAL reduces its Mgt fee by 4mil/annum while charging 15mil (~2% of valuation) if they can 'just' sell at 95% of NAV. Personally, i would prefer that they reduce this base fee and charge a larger % of premium if they can sell above market cap. Mr Market's is a much better valuer than the Board and its formulas. Sure enough if MIMAL can prove Mr Market to be wrong, i would be more than happy to reward them handsomely.

[Drizzt]

why do i have the feeling they are trying to play one last punk on us.

[Nick]

Wow 694 mil proceeds less 15 mil success fee is just 59.0 cents per share. I guess 58 cents share price is decent if you think it may take some time to sell and hence benefit from 4.5 - 5.0 cents dividend (since base fees are lowered). Think HPH Trust offers similar yield at this price.

[Nick]

http://info.sgx.com/listprosp.nsf/6c6be9...a000d2c94/$FILE/MIIF_AR12_FA.pdf [MIIF Annual Report 2012]

(Not Vested)

[kayhian]

why do i have the feeling they are trying to play one last punk on us.

ha ha ... i also feel the same way .... so I sold off all my MIIF before XD

[Wildreamz]

Wow 694 mil proceeds less 15 mil success fee is just 59.0 cents per share. I guess 58 cents share price is decent if you think it may take some time to sell and hence benefit from 4.5 - 5.0 cents dividend (since base fees are lowered). Think HPH Trust offers similar yield at this price.

Actually, that is assuming that it got sold at 694 mil right?

It could also get sold at a higher price, depending on the valuation of HNE, which reported a higher than expected return last year due to the opening of another expressway nearby, increasing the traffic flow.

It is very likely that it will be sold off at the current valuation given on its website about 740 mil or higher.

Giving the total book value per share of about 0.625 (its current stock price is 0.575 about 9% discount to NAV), not counting the potential dividend yield of 9.5% per annum at its current share value.

Are there any other hidden cost that I missed? Also is the annual 1.5% management fee still there?

(vested)

[Nick]

Wow 694 mil proceeds less 15 mil success fee is just 59.0 cents per share. I guess 58 cents share price is decent if you think it may take some time to sell and hence benefit from 4.5 - 5.0 cents dividend (since base fees are lowered). Think HPH Trust offers similar yield at this price.

Actually, that is assuming that it got sold at 694 mil right?

It could also get sold at a higher price, depending on the valuation of HNE, which reported a higher than expected return last year due to the opening of another expressway nearby, increasing the traffic flow.

It is very likely that it will be sold off at the current valuation given on its website about 740 mil or higher.

Giving the total book value per share of about 0.625 (its current stock price is 0.575 about 9% discount to NAV), not counting the potential dividend yield of 9.5% per annum at its current share value.

Are there any other hidden cost that I missed? Also is the annual 1.5% management fee still there?

(vested)

1) The threshold figure of $694 mil has already taken into account the Board's valuation of the underlying investment as of 31 Dec 2012 -

The Threshold Level is S$694.915 million, and has been set with reference to the Board’s valuation of the Company’s businesses as at 31 December 2012 of S$731.489 million (the “Board’s Valuation”). The Threshold Level represents the Board’s Valuation, net of estimated total transaction costs. The Success Fee increases as the Divestment Proceeds increase above the Threshold Level.

The question therefore is whether can MIMAL divest the 4 underlying investments above book value ?

2) The base management fee has been halved to 0.75% of NIV.

(Not Vested)

[Nick]

LIM Advisors Limited Today Published An Open Letter to All Shareholders of The Macquarie International Infrastructure Fund Limited ("MIIF")

Dear Shareholders,

Macquarie International Infrastructure Fund----Open Call to Reject Macquarie's Proposed Fee Amendment at the Annual General Meeting on 8 March 2013

The Macquarie International Infrastructure Fund (MIIF) will hold an Annual General Meeting (AGM) on 8 March 2013. On 20 February 2013, the Chairman of the Board of MIIF sent a letter to the Shareholders of MIIF announcing various proposals, including changing the management fee and incentive fee structure, that will be voted on at the AGM on 8 March 2013.

LIM Advisors Limited is the manager or advisor of two investment funds that currently own 7.60% of the outstanding shares of MIIF. We are writing to openly express our disappointment over the proposed amendment to the Management Agreement between MIIF and Macquarie Infrastructure Management (Asia) Pty Limited ("MIMAL"). We urge all Shareholders to vote against Resolution 6 in the upcoming AGM to be held on 8 March 2013.

According to MIIF's Letter to Shareholders dated 20 February 2013 (the "Letter"), the Independent Directors of the Board have concluded that the existing management fee arrangement with MIMAL should be amended to better align the interests of the Company and MIMAL, given the Revised Strategy (as defined in the Letter). In this regard, the Independent Directors proposed that MIMAL be entitled to a new fixed Success Fee of at least S$15 million in case the proceeds from selling assets (the "Divestment Proceeds") achieves what the letter refers to as the "Threshold Level". This Threshold Level is fixed at 5% below the officially reported Net Asset Value of MIIF, which is called the "Board's Valuation" in the Letter. In addition, MIMAL will also receive 10% of any proceeds between the Threshold Level and the Board's Valuation and a further 20% of excess proceeds over the Board's Valuation.

The Letter states that MIMAL agrees to a reduction of the annual Base Management Fee from 1.50% to 0.75% of MIIF's Net Investment Value, and these amendments are necessary to incentivize it to dispose of the existing assets in an orderly and timely manner. Shareholders should note that the amount of annual Management Fees payable to MIMAL is set to fall automatically after each asset disposal under the current management contract. Therefore, there is no reason for the Board of MIIF to incentivise or reward MIMAL to give up something they are already contracted to give up.

We believe the proposed Success Fee is unnecessary and the proposed restructuring objectionable for the following reasons:

The Board of MIIF and all Shareholders should be reminded that there is a performance fee arrangement already in place that would pay MIMAL 20% of any gains above an 8% annual hurdle rate. MIMAL has failed to earn any performance fees since 2007 due to its inability to generate returns for shareholders above this hurdle rate. In fact, the performance deficit is approximately S$609.3 million according to the Letter. Therefore, we believe any proposal that gives MIMAL a chance to make any performance fees when MIMAL has not generated the required returns could be considered generous and unnecessary. We further believe that a fixed Success Fee based on selling assets equal to the Threshold Level, which is approximately 5% below the reported NAV, is very unusual. In addition, when MIIF's focus was redirected in 2009 from its original strategy of investing in Europe and North America to investing in Asia, which led to the selling of assets in Europe and North America, the fee structure was not changed. MIMAL was able to successfully sell these assets without any additional incentives or a new success fee structure. We therefore see no reason why the fee structure should change as proposed.

Setting the Threshold Level at a 5% discount to the reported NAV implies the reported NAV does not reflect the fair value of the underlying assets. It implies that all the underlying assets cannot be liquidated at their stated value used to determine the NAV of the Fund. This is contrary to what Shareholders have been informed on page 13 of MIIF's 2012 Annual Report, where it says "MIIF uses the discounted cash flow (DCF) approach to value its investments. These valuations reflect the fair value for which infrastructure assets could be exchanged between knowledgeable, willing parties in an orderly arm's-length transaction." We call on the Board and MIIF's Auditor, PriceWaterhouseCoopers, to urgently clarify if the current NAV reflects the fair market value of the underlying assets and liabilities held by MIIF.

These amendments to the fee structure are being proposed before the appointment of an additional Independent Director. On 4 December 2012, the Board of MIIF announced its intention to appoint an additional Independent Director and that it would appoint the global executive search firm Spencer Stuart to assist with the search for this Independent Director. We note that Resolution 5 is for Shareholders to confirm the authority of the Directors to appoint such a director. We call on the Board to wait until an additional Independent Director has been appointed before proposing any changes to the fee structure, or proposing other material changes to MIIF.

The proposed restructuring does not provide transparency about whether the Macquarie Group will charge additional investment banking fees, corporate finance fees, advisory fees or other fees and charges for services to MIIF or to the Board of MIIF including for arranging the sale of assets when MIIF liquidates its portfolio of investments. We call on the Board of MIIF to clarify what additional fees and charges may be paid to the Macquarie Group and the basis and rationale for such fees and charges. Specifically, we question the following statement on page 6 of the Letter discussing the Threshold Level:

"However, the proceeds which the Company could receive may not be the same amount, as the Board's Valuation does not take into account any transaction costs incurred by either the purchaser or the Company or other relevant considerations in completing any divestment. Specifically, the purchaser may incur transaction costs including financial adviser fees, due diligence costs, legal costs, stamp duty and other transaction taxes, and refinancing costs. In addition, the Company may incur transaction costs including financial adviser fees, legal costs, vendor due diligence costs, transaction taxes and other miscellaneous costs. The Independent Directors believe that total transaction costs relating to the divestment of the Company's businesses amounting to 5.0% of the gross proceeds are reasonable."

Why does the Letter mention the costs of the purchaser? Usually, the purchaser pays its own costs and fees. Does this mean that MIIF will bear some or all of the transaction costs of the purchaser of its assets? Are any of the financial adviser fees and due diligence fees mentioned above going to be paid to any related entity?

According to the Letter, MIMAL holds 9.29% of the Shares as at 16 February 2013. MIMAL and its associates are excluded from voting on Resolution 6 as they are an "interested person" in relation to the Proposed Fee Amendment.

We will vote against Resolution 6 in the upcoming Annual General Meeting. We may also vote against other Resolutions. We urge all Shareholders to pay close attention to the proposed amendments to the fee structure since we believe they give MIMAL an unnecessary share of your interest in this fund upon this fund's wind-up.

Yours faithfully,

LIM Advisors Limited

Article: http://www.prnewswire.co.uk/news-release...83101.html

(Not Vested)

[Wildreamz]

Sucky management indeed. This investment seems like a mistake on day one.