Friday, August 21, 2009

Flush with cash: Debt-ridden private toll road operator's profits decline 323% in one year

MIG ponders assets split as toll roads hit skids

Macquarie loo

August 21, 2009

Scott Murdoch
The Australian
Copyright 2009

THE Macquarie satellite business model is being pared back further, after Macquarie Infrastructure Group (MIG) revealed it could split and internalise its management.

MIG, the embattled Australian and US toll-road owners, is pursuing a plan to divide its portfolios of assets into two ASX-listed funds in a bid to reverse its falling security price.

The plan came as MIG reported a $1.7 billion net loss for the full year, down 323 per cent from the $767.3 million profit recorded a year earlier.

The sharp loss in profit was blamed on weaker global economic conditions and the 3.4 per cent decline in traffic on the fund's international network of toll roads.

The decision to potentially split the assets, which Deutsche Bank sales traders termed "good-MIG, bad-MIG" came after nearly six months of investigating options to raise the flagging stock price.

MIG wrote down the roads portfolio by $3.47bn from December last year, to be worth $5.1bn, which prompted the net asset backing to be cut from $3.84 to $2.54 per security.

The MIG stock, though, is trading at only $1.36 on the market, after it dropped by 6.2 per cent yesterday.

MIG chief executive John Hughes said the board contemplated a fresh capital raising or asset sales.

However, an equity raising was ruled out because it would dilute current shareholder value.

"It is considered that splitting MIG into two portfolios is the most opportune way to add shareholder value in the short and medium term," Mr Hughes said.

"That will also allow us to directly address the leverage issues that a lot of commentators have made mention of. It seems that leverage is having the greatest issue on our security price."

Mr Hughes confirmed MIG held $30bn worth of debt across its portfolio, but said "that was appropriate for the financing of the assets".

"We have spent the last six months going through a range of options, and we are now going through them in finer detail," he said. "The independent board committee will work through with Macquarie on any internalisation."

MIG's plan to internalise management follows identical moves by Macquarie Leisure Trust and Macquarie Airports (MAp), which have cut ties with the investment bank parent.

The negotiations to spin off from Macquarie are expected to deepen in the next few weeks, but analysts have estimated it could cost MIG up to $689m.

Analysts initially criticised the $345m demanded by Macquarie when MAp announced its breakaway in late July.

White Funds Management director Angus Gluskie said a portfolio division was preferred by investors, instead of the capital raising or asset sales.

"Their strategy is designed to try and suit the disparate views of shareholders, because there are people in the marketplace with different agendas," he said.

"I think management have done the right thing of not going down the path of raising capital, because that would be dilutive, and not selling assets.

"From a short-term point of view, there are investors in the market who would prefer them do that and derisk the stock.

"But from the medium to long-term perspective, that isn't the right thing to do."

© 2009 The Australian:

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