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Search Results for: miif

MIIF propose to divest Taiwan Broadband Communications (TBC) into Asian Pay Television Trust (APTT)

April 4, 2013 by Kyith 6 Comments

In a move to realize value for MIIF’s shareholders, MIIF proposed to divest TBC into a business trust and payout in units and special dividends to shareholders.

MIIF finally proposed concrete plans to divest its crown jewel TBC into a business trust.

The full report can be viewedhere. You should read this article I posted 2 years ago on MIIF before reading this.

Shareholders not happy with MIIF

To recall, a few majority share holders was thinking that MIIF was not taking the steps to realize value for their shareholders and so there was a very big hooha to force a change in the board. That failed and MIIF engaged CIMB to do a strategic review.

In light of this strategic review, MIIF proposed to

  • distribute existing excess cash to Shareholders as a special dividend;
  • commence a joint process with Macquarie Korea Opportunities Fund (“MKOF”), MIIF’s TBC co-shareholder, to realise maximum value for the investment in TBC and to pursue the orderly divestments of MIIF’s interests in Hua Nan Expressway, Changshu Xinghua Port and Miaoli Wind. Such divestment options could include a trade sale or initial public offering of the businesses;
  • distribute the proceeds from any divestments to Shareholders as soon as practicable; and
  • allow MIIF’s corporate-level debt facility to lapse upon maturity and not renew
    such debt facility

MIIF change the structure they are paid

  • On top of that, they decide to change the structure which they will get their fees the reduction of the base fee by 50 per cent, which would lower MIIF’s operating expenses;
  • the establishment of a success fee linked to the successful divestment of MIIF’s
    businesses, which would only be paid if the proceeds from the divestment of MIIF’s businesses reach a level which represents a 30.4 per cent premium to the value of MIIF’s businesses implied by its share price, prior to the announcement of the strategic review on 10 October 2012.

Details of divestment

Not much concrete information is released yet but here are the key points:

MIIF present situation

Outstanding no of shares: 1170 mil

Market Cap: SGD 664 mil

TBC Valuation: SGD 507 mil (Dec 2012)

MIIF Asset Value: SGD 756 mil (807mil Dec 2012) (961 mil 2011)

TBC Purchased at:

  1. Total cost of purchase is S$479 mil.
  2. Initial acquisition of S$161 mil in Jul 2007. (33.6%)
  3. Acquisition of S$174 mil in March 2011. (36%)
  4. Securities issue consideration of S$143 mil in June 2011. (30%)

Divestment as a business trust

Divesting TBC as a SGX listed business trust allows shareholders to enjoy being paid out of cash flow instead of being limited by accounting profits.

Business trust do not have that good of a track record in Singapore. As they are seen as poorly performed, their share price is also affected.

Recent listings such as Religare Trust and HPH Trust have been a bit under the water, but they have not gone through a market bear yet.

Does present a good place to look for massively undervalued investments though.

I see this more as moving from one slaughter house to another. You still get slaughtered.

Perhaps you will only be slaughtered if, as a business trust, you still get managed by the same group of people, or people of the same caliber.

Read the part below on what I deemed as important determinant of a trust or fund.

I always remember that the same kind of assets such as REITs or shipping trust, under different hands can be pretty different.

Pacific Shipping Trust versus FSL Trust lease ships, but different management have changed their fortunes in different ways.

One at least knows who they should lease the ships to. The other just have no clue.

Divestment at SGD 469 mil

The Independent Directors believe that total transaction costs relating to the divestment of MIIF’s businesses amounting to 5.0% of gross proceeds are reasonable. As such, achieving consideration from the Proposed Divestment equating to 95.0% of the Board’s Valuation would be a good result for Shareholders. Taking into account the above, the Minimum Valuation has been set at 95.0% of the Board’s Valuation which equates to S$469.5 million (after all transaction costs) or Shareholders receiving S$0.408 per share.

It is noted that over the last 18 months, certain third parties have provided unsolicited trade sale offers indicating interest in acquiring TBC. Some of these parties undertook third party due diligence and following their due diligence provided indicative offers for TBC at pricing levels below the Minimum Valuation and with conditions.

So what they are saying is that the prospective acquirers are actually not willing to pay that high, and this is a good deal and we should take it.

Now does this say much about taking a stake in APTT or that they didn’t really buy something good in the first place?

The prospective sell price is lower than their purchase stake of 479 mil. Given inflation and development of capabilities since 2 and 6 years ago, the future prospect of TBC is actually less than last time.

We see that TBC have been growing in subscribers and EBITDA these few years, so the purchase price then must have factor in this growth rate.

Buyers are not willing to buy higher can only mean current valuers are valuing TBC less than last time what MIIF value it at.

So it may be the case MIIF overvalued this investment in the past.

It is disappointing that we didn’t get a 20% gain from this divestment.

While shareholders can finally realized the asset at NAV, I really hate the thought of MIMAL making money from this divestment just because they sold it at NAV.

 

Should I take my stake in APTT

Shareholders who wish to remain invested in TBC can do so through receiving their share of the MIIF APTT Units, which will be listed on the SGX-ST, without the need for any cash outlay. Alternatively, Shareholders who wish to exit their investment in TBC can do so through exercising the Cash Election and will receive cash equal to the value of their share of the MIIF APTT Units based on the initial public offering price.

The creation of APTT, which is a new listed entity, will provide Shareholders with an additional investment choice and greater flexibility as to how they wish to invest their proceeds from the Proposed Divestment.

Evaluating whether to purchase more of APTT or to take all cash and no units depend on a rational evaluation.

We should set aside some sunk cost thinking that we should definitely take a stake in this. We should evaluate it as any investment, evaluating it based on its future cash flow.

  1. TBC is leverage at near 60% if I remember, will the IPO remove part of the leverage
  2. The prospect of future growth
  3. The defensiveness of a digital TV broadcasting and broadband service in a Taiwan context
  4. A sensible intrinsic value
  5. Versus the price you pay
  6. Who is managing it

My opinions on MIIF

To say I am not a happy shareholder since their IPO days is an understatement. For a reputable Australian bank, they and some of these Australian companies have not shown a track record of being good managers.

In fact, the Australian trusts that have been listed here seem more to fleeced Singapore investors more than creating something of value.

MIIF have all along seem content to earn their base management fees and not actively look to add value to the fund.

They were so inactive for a long time before they decided to acquire another 25% stake in TBC because there was nothing good to buy.

And they decide to buy back their share because that will add value to shareholders.

It is only after the major shareholder hooha, that they decided they need to do a strategic review!

Which begs the question why the hell do we need them for as managers if they cannot evaluate prospects properly and have to engage a cheap Singapore company to do that (hope no offense to CIMB)!

Isn’t the job of the manager to consistently evaluate prospects? All these strategic reviews prove is that the internal management is incompetent.

And upon strategic review, they came up with recommendations that you and I and probably the major shareholders can recommend!

It’s a waste of shareholders money!

Changing the structure they are paid is a clear way to say they are looking at the last alternative to get value out of the fund at the expense of shareholders.

Because of their poor share performance, they can never earn the performance fee, so they tell shareholders they will get a fee if they manage to sell above NAV.

Isn’t that what a manager should be doing in the first place? If you tell me you manage to sell above the NAV and get paid better I can understand the rational of it.

My warning to all next time thinking of getting invested in listed entities like this is to look more into how they operate and evaluate sternly their operation records.

Capital Allocation as an important determinant

The key to funds and like this have to be their capital allocation and it is difficult to determine that.

After so much investing, I do place business determinants like capital allocation, sustainable recurring cash flow and valuations as the most important criteria.

It means that as investors, you either invest a small portion and watch their capital allocation or you wait to see their capital allocation initiatives to judge them.

Are they buy assets that add value to the trust?

Are they making hard decisions that shows it benefit the shareholders?

Are they risk managing well?

Do the actions consistently benefit shareholders or screw us up?

These will eventually lead to higher DPU and Share Price.

Trust, Funds are better hunted during corrections and bears

Although some of these funds and trusts have bad structures, the underlying assets may still be worth a lot of value.

This presents a good hunting ground for people able to value the underlying versus the share price.

Usually when they IPO, they can be overpriced. The sensible thing is to wait for a correction to see if it presents a  good deal.

You have more margin of safety, or perhaps it approaches its fair valuation more.

Filed Under: Dividend Investing Tagged With: Asian pay television trust, business trusts, Macquarie International Infrastructure Fund (MIIF)

Macquarie International Infrastructure Fund Limited (MIIF) will pay out cash, divest CXP, Maoli and Hua Nan Expressway

December 18, 2012 by Kyith 7 Comments

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.

I run a free Singapore Dividend Stock Tracker available for everyone’s perusal. Do follow my Dividend Stock Tracker which is updated nightly  here.

Filed Under: Dividend Investing Tagged With: Macquarie International Infrastructure Fund (MIIF), MIIF

AmFraser have some seriously optimistic cash flow projections for MIIF

May 11, 2012 by Kyith 15 Comments

Macquarie International Infrastructure Fund is a 9% yielding infrastructure stock listed on the SGX. I am invested in this and talked about my sweet and sour relationship with this stock a fair bit (read here)

MIIF just announced their latest quarter results. There are some good news in that the tax issues of Taiwan Broadband Communications (TBC) have been settled and the expected losses are immaterial.

However, it was still not clear how the expected moderation by the Chinese government over toll charges for Hua Nan expressway (HNE) will affect MIIF. I have asked for a sensitivity analysis from the Investor Relations but judging by their record they should not do anything about it.

I am positively surprise by the surge in traffic for HNE. Still the level of debts in this stock can be crazy and what we know is that most are not amortized which means that somewhere down the line, earnings by TBC and HNE may need to scale down to pay the massive debts or to get them refinanced.

Still, I read this report from AmFraser with their projection on how the cash flow of the 3 major assets will progress to.(read report here) I find them a tad optimistic. I would rather estimate based on the worst case scenario.

MIIF probably need 75 mil from the 3 assets since they need 65 mil to distribute the 5.5 cents annual dividend. The closest projection is 43 mil + 22 mil + 6 mil equating to 71 mil. We are still a bit short there but not that big of an issue since MIIF still have a cash horde.

Still I will watch this stock closely since the management in the past have made some rather questionable moves, its underlying have debts that could cripple distributions.

I run a free Singapore Dividend Stock Tracker . It  contains Singapore’s top dividend stocks both blue chip and high yield stock that are great for high yield investing. Do follow my Dividend Stock Tracker which is updated nightly  here.

Filed Under: Dividend Investing Tagged With: infrastructure, Macquarie International Infrastructure Fund (MIIF), MIIF

A detail DBS Vickers Macquarie International Infrastructure Report (MIIF)

November 28, 2011 by Kyith 1 Comment

We covered MIIF extensively in three previous posts here, here and here. Seems that the recent changes got analysts noticed as well.

DBS Vickers came up with an extensive 40 page report this week. The report is generally inline with my estimation on cash flow and dividend payout, which is a good thing. However, my figures are much more conservative.

20111128 – MIIF – DBS Vickers

 

I run a free Singapore Dividend Stock Tracker . It  contains Singapore’s top dividend stocks both blue chip and high yield stock that are great for high yield investing. Do follow my Dividend Stock Tracker which is updated nightly  here.

Filed Under: High Yield Investing Tagged With: infrastructure assets, infrastructure investment, Macquarie International Infrastructure Fund (MIIF), MIIF

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