Wednesday, July 15, 2009

MACQUARIE Infrastructure Group considers selling US assets

By Iain McDonald - The Australian - July 09, 2009

MIG to help holders of its securities

MACQUARIE Infrastructure Group is considering ways to help security holders, amid speculation of radical changes for the toll road owner as it grapples with high debt and some poorly performing assets.

"In response to a request from the ASX regarding market speculation, MIG advises that it is reviewing options which seek to enhance security-holder value," it said.

"The decision has been made by the MIG boards in respect of any of these options."

MIG had said previously that it was considering asset sales to boost shareholder value so the fund's use of the word "options" indicated it was considering other measures.

Analysts have speculated recently on a broad range of options for MIG, including a capital raising.

One close source said the choices being considered by the fund were not as broad as those flagged by analysts.

According to MIG, it would update the market no later than its full-year results briefing on August 20. The fund's securities closed down 6.3 per cent, or 9c, at $1.26 yesterday.

In the latest research note, Merrill Lynch analysts say MIG's gearing is too high and Australian fund managers view the listed fund as below investment grade.

They say the ratio of net debt to earnings before interest, tax, depreciation and amortisation needs to fall from 14.4 to about nine, and to get there MIG could give away its US assets, sell its remaining 25 per cent stake in Sydney's Westlink toll road and carry out a discounted rights issue to raise between $1.6billion and $2bn.

"We can't see a solution that doesn't involve a recapitalisation via some form of capital raising," Merrill Lynch's Matthew Spence, David Porter and Simon Chan say.

The overhaul suggestions are the latest in a string of proposals and speculation among analysts, traders and local media about the outlook for MIG, one of Macquarie Group's listed funds.

UBS analysts said in May that MIG's US assets, including the Chicago Skyway, Indiana Toll road and Dulles Greenway, could be sold for a nominal amount to remove fear among investors that the fund might have to pump additional equity into the US assets.

The problem with the US assets is that the debt taken on to buy the roads was too high, given the performance of the assets since they were purchased, according to Merrill Lynch. "Given this dismal view of the US portfolio is largely held across the market, in order for MIG to re-rate, we believe they need to get rid of the US assets," the Merrill Lynch analysts said. "We don't think it matters who takes them, given the nominal equity value."

In June, Macquarie Infrastructure changed its distribution policy so that future distributions will be based on cash flow. Previously, surplus funds were used to supplement cash flow when paying distributions.

It paid distributions of 10c per stapled security in the first and second half of last fiscal year but Merrill Lynch expects distribution of just 4c this fiscal year, which started July 1.

Macquarie Infrastructure first said it would look at selling other assets when it announced the sale of its interest in Westlink last December.
Read more in the Australian

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