This morning I received an email from Macquarie International Infrastructure Fund (MIIF) a 10% yielder on my Dividend Stock Tracker (see the rest of the yield stocks here), saying it has completed its strategic review carried out with CIMB.
For those following the saga, 2 prominent fund holders in MIIF want to add 3 directors to the board because they feel MIIF is not working fully to maximize shareholder benefits.
They stoutly refuses, and pen a letter telling the share holders to reject voting the 3 directors in because it will “affect the management negatively”.
Alas, they got their wish, but not before a lot of share holder disgruntment.
They reluctantly did a strategic review with CIMB to find out how best to move forward.
This is the result of their strategic review.
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;
- 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;
- Allow MIIF’s corporate-level debt facility to lapse upon maturity
These initiatives have been formulated with a focus on maximizing and returning value to MIIF shareholders. The Board will endeavor 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 Manager
The Independent Directors will seek to restructure the Manager’s fee arrangements to realign the interests of MIIF and the Manager. The Independent Directors will seek appropriate independent advice with respect to its discussions with the Manager.
On 4 December 2012, MIIF announced the Board’s intention to appoint an additional Independent Director to the Board. MIIF’s Nominations and Corporate Governance
Committee has appointed global executive search firm, Spencer Stuart to assist with the search for the new Independent Director including canvassing the inputs from representatives from a number of MIIF’s major shareholders
My thoughts is as follows:
- No shit! You need a strategic review to think of that? And to engage CIMB? Hold on here! Out of a net profit of roughly 60-70 mil we paid the management 10 mil in management fees to manage and now you need a strategic review to tell you all that? If you need so much ruckus to push for an external review, then why do we pay them so much management fees for?
- Mind you, apart from Global Investment Limited, they are the other one with greater than 10% of profit as management fees. We should expect them to do better. The key performance indicator for a fund stock like this as Berkshire Hathaway is capital allocation. That is their edge. Based on this, apart from the yield, these folks are telling us they have practically no edge there.
- TBC is the gem in the portfolio, but that doesn’t mean it is without its problem. A sole focus on TBC makes you wonder after the divestment what happens if TBC fails. TBC is laden with debts, as are HNE. It doesn’t take an idiot to know that restructuring the debt by paying off the cash from the parents may result in lower risk down the road.
- Compare this to China Merchant Pacific Holdings. Its 7% yielding on 50% payout, takes on debt but actively pays it down on the parent and on the expressway level. This probably takes advantage of cheap interest rates but also risk manages well so that the lowering of leverage enables them to be financially strong faster, own the assets faster. This is a China management and you are saying a Singapore/Australian based management who touts they are great at infrastructure investing cannot do that?
- Why sell off CXP? It is jointly own with Pan United, adequately geared and doing well.
- HNE its easy to see debt repayments have to increase in the future. This and Maoli will have to go.
- I am not so against not distributing the cash if the management are great capital allocators (Management = Moat?|Read). However, MIMAL have proven they are very passive in this area.
- Why is there a need to look for another director when there are some brought up that knows what is required by shareholders and can work for shareholders’ interest?
- Citing that these are complex processes underlines the fact that MIMAL will take their own sweet time to execute the following, so as to extract maximum management fees out of the fund.
- The review mentioned that the structure needs to change, perhaps we all know that better than the management. Really these are well educated folks whom we expect to be better than us in these areas. Comparing them to Global Investments Limited who we entrust to buy complex and risky assets (doesn’t mean they are doing a good job though!) and China Merchant Pacific, who practically does the same thing as MIIF but without that management fee structure, its easy to see a direct management approach will risk management and improve return on investments.
- How this will affect the share price and dividend yield will still depend on how soon management executes this. Knowing them it will take some time.
I probably grown tired of stating that if management is so important to a fund, I regretted leading readers to look at this stock. You may enjoy the 10% yield, but truth is it masks what could have been better returns.
I realise there is no easy way to assess management other than have some time to observe their capital deployments. You are going to miss out on some good returns if the management turns out to be good and you will be glad not to get a dud like Cityspring, FSL Trust by waiting out.
Moral of the story: Fund, Trust or Management stock > Look at their capital deployment records.
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