Investment Moats

Macquarie International Infrastructure Fund (MIIF) quarter review

by 12 Comments

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.