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Macquarie International Infrastructure Fund (MIIF) quarter review

Its time to screw MIIF. The infrastruture play that people say good and others say that it is deeply suspect.

They just released their quarterly report and by all figures it looks like they are suffering the effects of this global slowdown.

  • Net income was 25 million vs 145 million in the same period last year. This was attributed to
    • A Lower gain from fair value of MIIF’s financial assets (6.5 mil vs 211 mil)
    • Performance fees were lower (0 vs 3 mil)
    • Management fees were lower (3.4 mil vs 4.3 mil)
    • Lower total investment revenue. This is due to lower investment income collected as new asian investments generallly pay their distributions out of accounting profits annually in arrears. This results in a lagged receipt of intiial post acquisition disributions from such businesses.
  • Dividend of 4.25 cents vs 4.15 cents last year declared.
  • Cash position fell from 36 mil vs 55 mil. This is negligible compared to the asset size.
  • New longterm debt of 85 mil. However short term debt was reduced from 178 mil to 58 mil.
  • Operating cashflow decrease from 63 mil to 2.7 mil
  • Capital expenditure decrease from 286 mil to 0
  • 43 mil was paid out for div vs 0 mil last year same period.
  • Revealed that underlying debt INSIDE ASSETS amount to 2.2 billion.

What we can take away from this set of results is this:

  • We hope that by year end, the investment income from the asia assets does come in. MIIF borrowed 30 mil just so that they can pay the dividends. This has to be repaid.
  • Consequently, they repaid more of their debt compared to last year, which is always a good thing.
  • As a performance guage, the new assets would need to yield higher investment income then the European one. This is an important criteria. They sold those and justify that Asian assets will provide better yields and better value. We as shareholders would like to see that justfication in the bottomline.
  • The report revealed more information on the assets. Particularly
    • The revenue
    • The operating Expenses
    • EBITDA
    • EBITDA Margin
  • While we appluad that, much can be revealed about the interest coverage or the kind of debt financing plans these assets use. Most of these assets are unlisted and thus it is difficult to find any information on them. why am i so particular about this?
  • Because the total debt held by these assets amount to 2.2 bil! Thats even more than the parent’s market cap. This is synonymous as those leverage buyouts that borrowed heavily in the hope of paying it off based on consistent, proven cashflow generate by the assets.
  • Interest on these debts will reallly wacked the company if its floating rate. In a rising interest environment, interest rates will squeeze net profit margins greatly, thus making MIIF a sour investment.
  • Normally these assets do cover these floating rate debts using interest swaps on fixed rate debts. We hope the underlying assets does manage their debts well.

All in all, there is still alot of holes to be filled. The yield is definately attractive at nearly 11%. But is this sustainable? I feel it is. The biggest question are those underlying debts.

MIIF is covered as a dividend play at my Dividend Stock Screen.


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Thursday 25th of September 2008

u can see that morgan stanley, merrill were substantial shareholders here. this might be a combination of bad sentiments, shortist and these big boys unloading.

i have been asking myself if this price is justifiable. truthfully i expect them to pay 4 cts in the second half of the year.

based on the share price right now, the major risk is whether cost of equity and debt increasing will have a negative impact operationally. we will know at the next reporting.

a key note is that getting additional 40 mil in cashflow brings cashflow only up to 70mil. that aint enough to cover 8.4 cts of full year dividend comfortably. it has to be substantially higher.

they would really need to show net fees and borrowing costs, they can churn a good cashflow.


Wednesday 24th of September 2008

i am vested in this at 70-80c range... therefore it is distressing to see the current quotes. Me thinks mosttly it is due to the negative reaction or speculation to the health of parent macquarie group. Actually investor relation is also aware of such negative perceptions floating around. He counters: the board of directors of parent & miif are independant of each other... it is not like parent can come in & dictate the running of miif; as well, there is nothing to stop shareholders from voting out the current miif management team if the latter is deemed 'incomptent'. anyway, parent credit rating has been reaffirmed. really i am at odds to come up with reason why this thing is being bashed like hell.


Tuesday 23rd of September 2008

thanks for sharing the information kysier.

We can only know in time to come whether the things that come out from the horse's mouth is like the eventual reality.

best regards.


Tuesday 23rd of September 2008

I just got off phone with investor relation re the following queries:

a) why report ebitda & not netPL

he says infrastructure assets are very large ticket items & miif is interested & to intend to show to public their ability to generate + increase operating profit. showing only net PL would not be able to achieve that

note also "Investments in Asia generally pay distributions out of accounting profits" therefore this lessen worry about assets paying dividends out of their capital

b) acquisition of asian assets

he reiterates again opportunities pipeline is very strong however as the world has changed it is very very difficult to make accretive acquisitions in excess of trading yield; therefore that has been kiv for now

c) pay dividend more than net PL

miif declares div to be paid of ~44mio however net pl (adj) is only 30.8mio how is this possible? he says this is a timing issue: since 30jun, miif has received additional 40mio from assets therefore will be more than enough to cover div payment

d) performance of 2008

as per announcements, he expects strong performance for 2008; at the minimum, the net PL (adj) would be similar to 2007; considering the financial tsunami that 2008 has, this is very commendable

e) final last words

before hanging up he repeats & stress the official words that miif assets are operating very strongly; business is as per usual; debt at asset level is negligible; all in... it's in good shape


Saturday 6th of September 2008

hi dnhh, i guess i would continue reading up more on these industries just like i always have.

What is stopping me from adding on have been the risks involved and really i get more info about investing in infrastructure and the likes from external source rather than miif report, although its been changing quite a fair bit.

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