The 15-minute debate about the so-called ‘Macquarie Model’ with US analyst Edward Chancellor on Radio National’s Saturday Extra was a bizarre experience, as I felt like a parochial Aussie spindoctor for the bank up against a plummy Pommy critic.
However, these are the key points that had to be made and Chancellor didn’t seem to have too many comebacks:
- Macquarie has bought 114 infrastructure assets since 1994 and sold off eight, all of which went for more than the book value, dismissing claims of unsustainable write-ups.
- Of the 106 remaining infrastructure assets, they are indeed saddled with $95 billion of debt, but this only represents 58% of book value, which is nothing like the 93% debt component of KKR’s bid for Nabisco.
- This Macquarie fund debt is 91% hedged or at fixed rates for the first two years and even 45% is locked in for 7 years, so they are largely protected from rising interest rates or a collapse in the easy credit environment.
- Macquarie’s record is strong because assets such as Sydney Airport, the M6 in Britain, Broadcast Australia and Birmingham Airport have all more than doubled in value since acquired.
You can listen to the debate here, although it doesn’t start until about 8.10am.
Corporate governance campaigners were emailing to say it was a “sell-out” and such support for Macquarie was something I’d regret when the first Macquarie Bank fund exploded.
Chancellor has certainly created some waves for Macquarie. Nicholas Moore, the architect of its infrastructure strategy, even spent an hour briefing the former Lazard analyst last week after this ground-breaking 5000-word essay attacking the infrastructure fund model generated widespread media and investor attention.
Macquarie’s managing director, Allan Moss, has extended the counter-offensive by giving a lengthy interview to London’s Daily Telegraph.
Once again, the point was made that profits from flicking assets into funds only delivered about $70 million of Macquarie’s $7 billion in operating income last year, whist fees for advising the funds on corporate transactions only accounted for about $210 million.
Macquarie does remain a potential corporate governance nightmare riddled with conflicts of interest, but as someone who holds stock in about 10 of their vehicles, the experience so far has been terrific.
Things might indeed change, but for now Macquarie should be applauded for profitably extending their model to gouging people all over the world, rather than just Australian users of airports, toll-roads and other monopoly assets.
Get Crikey FREE to your inbox every weekday morning with the Crikey Worm.