Dividend & Income investors in Singapore would be scratching their head recently by the drastic fall in share price of Babcock and Brown Global Investment and Macquarie International Infrastructure fund.
BBGI dropped drastically to its current price of 29cts, a far cry from the 1 dollar it was trading at a year ago.
MIIF plunge from 76cents recently to as low as 62 cents. I am vested in MIIF. MIIF is tracked at my Singapore Dividend Stock Tracker.
Investors would be wondering if this fall is due to the broad gloabl economic fall in stock prices or are there unsystematic information that causes such a fall.
The financial times did highlight this in their recent article dated 24 AUGUST 2008:
By Sundeep Tucker
Published: August 24 2008 20:57 | Last updated: August 24 2008 20:57
The rush by Australian-listed infrastructure funds to divest assets is in danger of turning into a stampede.
Three such high-profile announcements last week have shone an unwelcome spotlight on a sector that until recently was a darling of the stock market.
The pioneer of the specialist fund model was Macquarie Group, although several local rivals including Babcock & Brown and Allco Finance joined in with gusto. The model involved buying infrastructure assets in sectors such as energy, ports, utilities and property, and bundling them into listed satellites and taking fees.
It worked a treat in the days of cheap credit, as buyers could borrow heavily and pay top dollar for assets that were themselves always rising in value.
The global credit crunch has changed the game for the infrastructure funds, with funds scrambling to reduce their average weighted cost of capital.
Some have divested to slash net debt or are pre-emptively selling assets well ahead of renewal of debt contracts. Several others have decided to change policy and only pay distributions from operating cash flows, thereby cutting debt but also dividend yields to investors.
Last week’s divestments began with Babcock & Brown Power, the country’s biggest listed generator, which booked A$425m (US$373m) in writedowns and announced the sale of the Tamar power station back to the Tasmanian government for a knock-down price of A$100m. The fund has slashed its gearing levels in recent weeks.
The news led to a dramatic 45 per cent fall in the share price of parent company Babcock & Brown last week, prompting the departure of chief executive Phil Green.
Macquarie Airports followed, unveiling the sale of stakes in Brussels and Copenhagen airports for A$1.5bn. Management, frustrated by a share price that does not reflect the underlying value of the fund’s assets, hopes that the de-leveraging and a A$1bn share buyback will boost the fund’s stock.
On Friday, Macquarie Communications Infrastructure disclosed the $363m sale of a flagship asset: its 28.7 per cent stake in Global Tower Partners, manager of 3,000 communications towers in the US. The fund plans to use the proceeds to repay convertible debt.
Luke Macnab, infrastructure analyst at ABN Amro in Sydney, said that individual funds’ divestment and capital management strategies were driven by the specific state of their balance sheet. This in turn often depended upon whether or not the fund concerned acquired assets at the peak of the credit cycle and so was caught out by the sudden downturn.
Mr Macnab added: “Some infrastructure funds are selling to reduce debt levels, while others are divesting assets because they have found willing buyers prepared to offer a premium to their current share price.”
Ultimately, he said, the test was whether the sell-off action improved the stock price. Investors are proving hard to convince.
Like its parent, Babcock & Brown Power fell by more than 40 per cent last week, while Macquarie Communications’ stock price dropped 18 per cent on Friday. Macquarie Airports fared better closing up 9 per cent and so reversing some of this year’s decline.
The stock prices of the funds are expected to be volatile in the coming weeks, as investors further scrutinise debt levels and asset values, with further sales and capital management changes in the pipeline.
Philip Wensley, an infrastructure analyst at Morgan Stanley in Sydney, noted that Macquarie Infrastructure, Babcock & Brown Infrastructure and Asciano, an owner of port and rail assets, were among those to have flagged divestments of local or overseas holdings.
However, he cautions: “Finding buyers for these assets will not be easy because potential investors – including those who control unlisted funds – see that valuations are still falling.”