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Should you go for Hutchison Port Holdings (HPH Trust) IPO?

Its really to pop this question especially for an IPO that we read about, but for me evaluating an IPO is more:

  1. The climate the IPO is being issued at
  2. How well known is this IPO

Last year we have Global Logistic Trust and a lot of people got some great coffee money.

This issue will be no different. The climate is conducive for IPO and this issue is from the parent Hutchison Whampoa. That to me is even more reputable than Temasek.

This deal could possibly raised USD 3 billion which will make this the largest ever public offering in Singapore.

Predictable Income from Infrastructure Assets

Ports are assets that are defensive in nature. Income from ports tend to be predictable and therefore suitable for business trust.

We already have one listed that have a port as an infrastructure trust which is MIIF.

The question is whether they would issue dividends. This is probably important for Passive Income investors looking for Dividend Income.

Another question to ask is how leverage this will be eventually. Do note that the Achilles heel of MIIF and Babcock and Brown (currently Global Investment) was that although they seem to be debt free, the underlying assets were bought over with huge amounts of debt.

When the debt crisis hits they cannot refinance the debt or the cost of refinance get so high that it is a question if the can get it refinance.

As a summary good ipo, but we still do not know if you  will be a carrot head to hold this long term.

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Jack

Wednesday 19th of January 2011

Does that mean that the parent company borrowed to pay for these underlying assets?

Drizzt

Thursday 20th of January 2011

In business you seldom purchase these assets with pure cash. Its not efficient. Bond sales to finance is common.

La papillion

Wednesday 19th of January 2011

Hi drizzt,

"Do note that the Achilles heel of MIIF and Babcock and Brown (currently Global Investment) was that although they seem to be debt free, the underlying assets were bought over with huge amounts of debt."

Could you please explain further what you mean by that? I don't understand how it can seem to be debt free but the underlying assets are bought with huge debts.

Thanks in advance!

Drizzt

Thursday 20th of January 2011

Hi La papillion,

I can't remember exactly but here is how it goes. The assets such as the ports, broadcast companies are not listed. MIIF bought stakes in them but do not fully own them. And they finance these payments via equity raising (us investors basically). On the main balance sheet there is really no debts.

But the underlying companies when they BOT or constructed is like HPH which is laden with debts. MIIF says that these debts are non-recourse to MIIF. But essentially although MIIF Mkt Cap is 2 billion the debts are almost that size.

During a down turn like the credit crisis, MIIF do not have an issue. But the underlying assets still needs to get these refinanced! Inevitably profitability and stability is affected.

Me and Grandmaster89 from channelnewsasia was evaluating another china toll road company China Merchant Pacific and note the difference in structure.

Bottomline is that the parent is a holding company and if that is the case we should move further to evaluate its management and its holdings.

Investors might want to read this 2 articles:

Macquarie defends its infrastructure model > https://investmentmoats.com/money-management/dividend-investing/macquarie-defends-its-infrastructure-model/

Would you buy a bridge from this man? > https://investmentmoats.com/singapore-stocks/would-you-buy-a-bridge-from-this-man/

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