MACQUARIE INTERNATIONAL INFRASTRUCTURE FUND (MIIF) will sell its assets and return the cash to its shareholders. The decision by its manager, Macquarie Infrastructure Management (Asia) Pty Ltd (MIMAL), comes after a strategic review by independent financial adviser CIMB and pressure from investors to address the weak market value of its shares.
"In coming to the decision, MIIF acknowledged that the current business model, in which MIIF operates under a listed-company structure but acts like a business trust, is constrained in its growth strategy," notes Goh Han Peng, an analyst at OSK-DMG. In the past year, shares in MIIF traded as low as 50.5 cents, or at a 28% discount to its net asset value (NAV) of 70 cents a share. On Dec 5, two large investors in the fund sought to have three new directors appointed to the board of MIMAL at a shareholders' meeting. The bid failed, but MIMAL pledged to continue its effort to address the weak market value of MIIF's shares.
In the past decade, several real estate investment trusts (REITs) and business trusts were listed in Singapore and touted as offering a steady yield to investors. Their performance has been mixed, with business trusts faring particularly poorly. "The problem with business trusts is that they are positioned as yield plays, but they are asset-heavy, with a lot of capital expenditure involved. The need to continually invest is a flaw in their sustainability," Goh says.
Since the plan to wind up MIIF was announced, its shares have climbed strongly, hitting a high of 63.5 cents on Dec 19. "The reaction of the shareholders was universally positive, and we were buoyed by their strong support," says Oscar Ludwigson, head of investment banking at CIMB. "We are going to need their support because of shareholders' approvals for the asset sales."
Based on the advice of CIMB, MIIF will distribute its existing excess cash of S$60 million to shareholders as a one-off special dividend of around five cents a share. It will then start divesting and realising the value of its assets in an orderly way. Its assets include major stakes in Taiwan Broadband Communications (TBC), Hua Nan Expressway (HNE), Changshu Xinghua Port (CXP) and Miaoli Wind.
The process will involve engaging co-investors in each of its assets. In the case of TBC, for is about the long-term viability of similar listed structures. Notably, business trusts such as Hutchison Port Holdings Trust, Religare Healthcare Trust, Perennial China Retail Trust and CitySpring Infrastructure Trust are all trading below their IPO prices. It could also make it tougher for the slew of other trusts preparing to list in Singapore to win investors over.
This story first appeared in
This story first appeared inThe Edge Singapore weekly edition of Dec 24-31, 2012.