Macquarie International Infrastructure Fund

[Nick]

MIIF ANNOUNCES A SERIES OF INITIATIVES AND DIVIDEND INCREASE

Singapore – 14 March 2011: Macquarie International Infrastructure Fund (MIIF) today announced a series of initiatives for the Company.

Key initiatives include:
- Deleveraging of Taiwan Broadband Communications (TBC)
- Acquisition of a further 20 per cent interest in TBC
- Commencement of on-market buy-back of MIIF shares
- Dividend guidance of 2.75 cents per share for the six months to 30 June 2011

MIIF is a business trust which invest in Asian infrastructure assets and seeks to distribute its free cash-flow to its unit-holders. The Management under the new CEO, John Stuart, led the divestment of all of its European assets and sought to concentrate solely in Asia. The sale proceeds from the above-mentioned divestment was around $470 million.

MIIF Assets:
38% stake in CXP Port (the rest owned by Pan United)
20% stake in Taiwan Broadband Communication (excludes latest M&A)
81% stake in HNE Expressway
100% stake in Maoli Wind (fully impaired)

http://info.sgx.com/webcoranncatth.nsf/V...200587A10/$file/MIIFInitiatives14032011.pdf?openelement [Press Release]

http://info.sgx.com/webcoranncatth.nsf/V...200587A10/$file/MIIFInitiativesAppendix14032011.pdf?openelement [M&A]

Based on the current share price of 58 cents, the stock is trading at a projected yield of 9.4%. The increase of its stake in TBC and subsequent re-capitalization exercise will lead to an increase of $34 million in profit. It must be noted that MIIF will still have $150 million cash available post-transaction to carry out further acquisition or conduct a share buyback. A 10% repurchase of its shares at 60 cents per shares will cost $78 million while giving the yield a pretty decent boost.

Lastly, MIIF doesn't incorporate its under-lying asset debt into its balance sheet since it is merely an investor.

Any views ?

(Not Vested)

[mikh]

Mcq IIF will own 47.5% of TBC with balance held by Mcq Korea Ops fund.

[Nick]

Mcq IIF will own 47.5% of TBC with balance held by Mcq Korea Ops fund.

Yup...the increase of its effective stake from 20.0% to 47.5% is due to the S$175 million acquisition of a 20% stake from another investor and a further capital injection into TBC of approximately S$145 million. MIIF has forecasted an increase in TBC contribution by $34 million due to its much higher stake and increased distribution after loan payments are made from the capital contribution.

[Nick]

As alluded in the previous press release, they have initiated a share buy-back program to enhance shareholder's value with their excess cash. It makes good business sense to repurchase their units since it carries a projected yield of 9.5%. Today, MIIF purchased 774,000 shares @ $0.575 per share. A repurchase of 10% of its outstanding float at current prices would amount to $74.5 million.

I found it odd (even though it makes good biz sense) for biz trust to repurchase shares because the money could be used to further increase its asset size (and Management fees). I guess since MIIF Management fees is based on market capitalization, the Manager must have realized that share buy backs should (in theory) maintain the market capitalization while increasing the DPU to existing unit-holders.

Anyone wish to comment on the viability of their 3 core assets - Taiwan Broadband Communications, HNE Expressway and CXP Port ?

[Nick]

MIIF's Divestment P&L Record

As we can see below, MIIF initial assets and acquisitions were top-notch and were divested at handsome gains. Naturally, selling at the peak (2007/08) contributed significantly to the gains back then. However, investments made in Arqiva (which contributed to 1/5 of the portfolio) held the Trust back significantly when the credit crunch hit it dearly.

The key question therefore is - with its rather huge cash hoard and zero corporate debts - can MIIF repeat its amazing divestment strategy 3-4 years ago ? Or will it continue to acquire flops ?

Perhaps, time should be spend on studying their current 3 assets first...

Novena Macquarie Renewable Energy (2005 - 2006)

Acquired: $64 million
Sale Proceeds: $91 million
Dividend Income: $11.6 million
Profits: $38.6 million
Total Return: 60.0%

Macquarie Infrastructure Company (2005 - 2007)

Acquired: S$25.9 million
Sale Proceeds: $37.6 million
Dividend Income: $4.6 million
Profit: $16.4 million
Total Return: 63.3%

DUET Group (2005 - 2007)

Acquired: S$55.2 million
Sale Proceeds: $84.9 million
Dividend Income: $12.4 million
Profit: $40.6 million
Total Return: 73.3%

Macquarie Communications Infrastructure Group (2005 - 2007)

Acquired: S$163.5 million
Sale Proceeds: $149.3 million
Dividend Income: $22.2 million
Profit: $8.0 million
Total Return: 4.9%

Brussels Airport Company (2005 - 2007)

Acquired: S$71.7 million
Sale Proceeds: $109.6 million
Dividend Income: $46.2 million
Profit: $84.1 million
Total Return: 117%

TanQuid (2005 - 2007)

Acquired: S$114.4 million
Sale Proceeds: $183.1 million
Dividend Income: $36.9 million
Profit: $105.6 million
Total Return: 92.3%

Macquarie Airport Group (2005 - 2008)

Acquired: S$154.5 million
Sale Proceeds: $154.3 million
Dividend Income: $33.5 million
Profit: $33.3 million
Total Return: 21.6%

Macquarie European Infrastructure Fund (2005 - 2009)

Acquired: S$139.5 million
Sale Proceeds: $132.0 million
Dividend Income: $35.3 million
Profit: $27.8 million
Total Return: 19.9%

Canadian Aged Care (2005 - 2010)

Acquired: S$164.9 million
Sale Proceeds: $92.5 million
Dividend Income: $66.7 million
Loss: $5.7 million
Total Return: -3.5%

Arqiva (2005 - 2010)

Acquired: S$434.8 million (includes add-on acquisition of NGW)
Sale Proceeds: $240.1 million
Dividend Income: $111.0 million
Loss: $83.7 million
Total Return: -19.3%

I hope this data will serve any prospective MIIF investor well. I am not vested in this Trust. Just quite intrigued by the idea of a listed mutual fund and how it could function to increase shareholder value. Please correct me if I made any mistakes or incorrect assumptions. This is not a buy or sell call !

(Not Vested)

[Nick]

Let's examine the performance of the current 4 assets of which 3 are are income generating and were acquired after 2007. They are all located in Asia whereby 2 are in Taiwan and 2 are in China.

Changshu Xinghua Port (CXP) (2005 - present)

Acquired: $112.3 million (38% stake)
31 Dec 2010 Valuation: $89.8 million
Dividend Income: $19.0 million
Total Loss: $3.5 million (includes paper gains)
Total Return: -3.1%

Hua Nan Expressway (HNE) (2007 - present)

Acquired: $295.7 million (81% stake)
31 Dec 2010 Valuation: $271.3 million
Dividend Income: $63.1 million
Total Profit: $38.7 million (includes paper gains)
Total Return: 13.1%

Miaoli Wind (2008 - present)

Acquired: $30.8 million (100% stake)
31 Dec 2010 Valuation: $0 million
Dividend Income: $0.4 million
Total Loss: $30.4million (includes paper gains)
Total Return: -98.7%

Taiwan Broadband Communications (TBC) (2007 - present)

Acquired: $161.8 million (20% stake)
31 Dec 2010 Valuation: $189.8 million
Dividend Income: $49.9 million
Total Profit: $77.9 million (includes paper gains)
Total Return: 48.1%

Note: MIIF acquired another 20% in TBC in March 2011 for $174.4 million. It intends to subscribe for securities offering valued at $145 million to raise its stake further to 47.5%. The proceeds from the sale of securities will go to lowering TBC gearing.

MIIF current Asian assets have a very mixed record. Maoli Wind was a disaster though the exposure was small. Nevertheless, such opportunistic acquisitions reflects poorly on MIMAL. HNE and TBC were pretty good acquisitions. HNE increased its distributions to MIIF annually while TBC EBITDA growth gave stable distributions. There was a dip in 2010 due to TBC debt amortization but with the recent refinancing complete and proposed securities offering, distribution income should increase significantly. CXP has been performing decently but clearly MIIF over-paid for it in 2005 judging by the dip in valuation.

MIIF is betting big on TBC (its best performer) by intending to utilize $320 million out of its $478 million cash hoard to invest in it. Assuming it is successful, TBC should generate $34 million incremental profits while boosting MIIF overall DPU to 5.5 SG cents. MIIF would still have $150 million to launch further accretive acquisitions.

Of course, risk do exist. As unit-holders, are owners of MIIF and not its underlying assets, it is difficult to study the financials of its assets to determine its health. Moreover, there is no certainty (judging by its record) that MIIF can utilize its cash resources on yield accretive acquisitions.

Let's see how they continue to perform in the coming quarters.

(Not Vested)

[Nick]

MIIF repurchased 1.6 million shares @ $0.58 today from open market. This increases its treasury shares to 2.374 million shares. It is rare (and unprecedented) for a business trust to repurchase its own shares !

[Nick]

MIIF purchased 2.5 million shares at $0.5974 per share today from open market. Now they got a total of 4.874 million treasury shares.

MIIF closed at $0.60 today. It has projected a 1H 11 DPU of 2.75 SG cents on the condition that they proposed securities offering for TBC is concluded successfully.

[Nick]

MIIF purchased 1.677 million shares @ $0.6035 per share today from open market. At the moment, they hold on to 6.551 million treasury shares or 0.50% of the outstanding float.

[Nick]

Over the week, MIIF continues to repurchase its shares on a daily basis. As of today, it holds on to 9.035 million treasury shares or 0.70% of the outstanding float. MIIF is the only business trust that has re-purchased its shares !