Friday, December 5, 2008

Is Macquarie International Infrastructure Fund a good buy for the Beefy Barber?

Whenever the Beefy Barber wants us to help him, we notice his biceps start bulging slightly. Barber wanted to know if Macquarie Infrastructure is a good buy as the price has dropped from an all time high of $1.23 to $0.295. He also mentioned about the very high dividends yield of about 24.5% (based on dividends of 7.25cents on market price of $0.295). But he is confused, he says. Lately, instituitions such as Capital Group has been reducing their stake from 7.0159 % To 6.9547 % . Macquarie has been reducing from 11.08 % To 10.71 %. BUT Directors such as Lee Suet Fern and Heng Chiang Meng are buying up shares. So what's up? We decided to go together to the Macquarie Seminar on 4 Dec 2008 to learn more. Frankly, we came out non the wiser. What was mentioned is exactly what has been announced on the SGX website and we won't elaborate more. We remembered only the speaker saying that the Catalyst of the plunge was due to Hedge funds who dumped around 10% late last year and Lehman's collaspe and something of a conservative estimate that the dividends will be expected to be 6 cents next year ( 20.3% dividend yield) and that once corporate debt has been repaid, MIIF will start to increase dividends again and that there is going to be a change of depreciation method from a straight line method to a units of production method for Hua Nan Expressway. Hiyah...don't understand the Australian Dudes slang!!! Anyway, as the Barber was more interested in the dividends, which is the meat of this investment, we decided to compile a chart, showing the Distributions of each of the underlying compared with the risk ( gearing) of each of this business. We reasoned that this would be helpful to Barber as any collaspe of any one of the businesses will mean no distributions from that business and therefore a reduction in dividends.

Please note that the distributions used above in the chart is based on operational dividends, excluding special, one -off ones. As can be seen from the diagram above, if Miao Li or Hua Nan were to collaspe, since their distribution contribution is so minute there should not be a material impact to the dividends received. (assuming fees and charges remain the same),especially Miao Li with the highest gearing.CAC and MEIF is quite risky and their distributions to MIIF is quite substantial.

We wanted to compare with what an appropriate infrastructure gearing is. And found this article.

Quote Gearing is higher for unlisted than listed infrastructure. One of the advantages of unlisted infrastructure is an owner’s control of the capital structure. Hence, gearing levels in privately held infrastructure range from 50% at the lower end, for higher risk infrastructure such as airports, to 90% for social infrastructure (schools, hospitals, etc) for which the revenue stream is typically backed by government or semi-government payments. On average, gearing for listed infrastructure companies is around 40%. However, it varies significantly across companies and across regions. For example, gearing for some of the Australian listed funds is quite high (above 50%) while the European infrastructure companies have a low level of gearing (around 30%). Unquote

Since MIIF underlying businesses are unlisted and the consolidated average gearing is roughly 60% and its within the gearing range of unlisted infrastructure as stated in the article above ( 50% - 90%), no glaring problem seen.

We have not heard from Barber since we left the seminar whether he would still want to invest in it. He owes us each an "ARMANI" haircut for accompanying him to this seminar.
Important: The objective of the articles in this blog is to set you thinking about the company before you invest your hard-earned money. Do not invest solely based on this article. Unlike House or Instituitional Analysts who have to maintain relations with corporations due to investment banking relations, generating commissions,e.t.c, SGDividends say things as it is, factually. Unlike Analyst who have to be "uptight" and "cheem", we make it simplified and cheapskate. -The Vigilante Investor, SGDividends Team


  1. Something I find from their End-June 2008 report. Dividends from Hua Nan Expressway is projected to come in at Sept-2008 due to the change in the above mentioned depreciation method. If I remember correctly HNE represents 21% of MIIF. So I am wondering if there is any mention of this dividends...

    Btw, if you ask for "ARMANI" the barber will normally do aggressive leveraging on your hair such that you may lose all your hair in one stroke.

    Footnote : I am sadly vested (and SGDIVIDENDS rocks)

  2. Hi Testtubewasher,

    Hmm..checked out the june 2008 report and what you mentioned is on pg 39.

    HNE distribution for Sept 2008 ( as given in their Third Quarter 2008 announcement) is a special one and it is stated as ( in the footnotes):Special distribution of S$14.4 million was due to a reduction of HNE’s future liabilities when compared to MIIF’s expectations at acquisition as a result of the completion of a number of initiatives, including the successful implementation of the acquisition transition plan and the refinancing of HNE with a 14-year term facility

    What you mentioned was in the End June 2008 report is: The tax bureau’s approval of a change in HNE’s depreciation policy from the straight-line method
    to the units-of-production method has led to an increase in retained earnings for 2007. As a result,
    HNE’s first distribution is now expected in September 2008 (previously March 2009).

    Frankly, we don't think the special distribution is refering to what they stated in June 2008 about the depreciation change method right?

    We also don't know. But anyway, does depreciation affect cash distribution? Depreciation is a non-cash accounting concept, so really, we don't really understand the end June 2008 report which you pointed out.

    Anyway, we have emailed their investor relations to ask.

    If they reply, we will post it here =)

    Hmm..wonder how many test tubes you have washed?

    SGDividends Team

  3. Anyway, this barber..though beefy is quite gentle with hair.

    Whats so shiok is also when you see him smear coconut oil on his biceps and body which results in his muscles shimmering under the saloon spotlights while cutting your hair and muscles twitching as he snips off your hair...oooh its one of the sexiest thing one can ever see....

    Its not the haircut...its the process when you see such a shimmering beefcake doing such a gentle thing!

  4. Thanks, as opaque as ever I guess...

    MIIF - "sure make money but still make you sleepless at night" - the lower it goes, the more I buy. Book value is at 90+ cents I think

    What made me sleep better were
    1) dividends cut of 1 cents (or approx SGD110 million) to repay debt
    2) shifting of asset allocation to Asia from Europe
    3) maple tree logistics which was roughly at same %yield dropping down to the same price-range. I was choosing between either of them.

    Going forward, you better cut down on sexy vjc girl and oily beefy barber types of writing, else aunties and uncles will look at you strangely and not buy your "minidividends"(TM) fund ??

    Oh yah, many test tubes...very dirty and very expensive also..

  5. Haha..Its ok they don't buy our Minidividends fund lest we kanna the minibond saga and then we will have to face Mr Tan Kin Lian and see Hong Lim park getting noisier and noiser and spilling out into the roads ( since the park is small).

    your lab must be making test tube babies thats why the testtubes are expensive.. just talking cok.


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