A year or so ago, Garry Weaven’s Industry Funds Management was having to ration the infrastructure investments he could offer to his clients — primarily Australia’s industry superannuation funds. There just weren’t enough reasonably priced deals available.
Now Weaven is looking for more funds as there are so many infrastructure assets being offered by distressed and semi-distressed vendors. It’s a buyer’s market.
Over at Australia’s most successful superannuation fund, MTAA, Mike Delaney is feeling frustrated because his investment disciplines limit the amount of money he can put into infrastructure. Despite having cash inflow of about $1 billion a year, he already has about as much infrastructure in his growth fund as he’s allowed. He told Eureka Report recently that some of the deals on offer are “extraordinarily attractive”.
So who would want to sell infrastructure projects right now? You might think only those who really, really need to. Enter Babcock and Brown and its various satellites, plus Macquarie Infrastructure Group et al.
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Some of the poor devils are still trying to blame the market for their problems e.g. Babcock and Brown Infrastructure chairman David Hamill. That’s the BBI whose credit rating has been knocked down to sub-investment grade, the BBI that is in such a state that it’s even looking at the fee gouge it pays its parent.
Garry Weaven’s IFM has more than $7 billion worth of infrastructure under management and will add another $1.5 billion or so this year. He told Eureka Report last week that the market had not fallen in a heap, that there aren’t fire sales all over the place, but:
There are a few semi-distressed sales and there are many other assets that may become available but in a much more orderly sale process and not a distress sale process. It needs to be seen what happens in the credit markets over the next twelve months. It wouldn’t take much to convert ordinary sales into fire sales and I’m by no means certain that all of the worst financial news is out on the table.
Which might help explain what MIG is up to with the strange sale if its half stake in the M7 Westlink motorway to fund a buyback. It was nicely skewered in the AFR’s Due Diligence column on Monday:
This raised pulses for two reasons: selling a quality growth business to pay for a buyback is not an obvious sing of financial health.
The prevailing interpretation is that Macquarie Infrastructure bought itself time, not vision.
Secondly, the logical buyer of that stake — Westlink’s other shareholder, Transurban Group — can’t afford to increase its interest in the road and nor would its investors endorse another capital raising to pay for it.
But for really odd behaviour, there’s always Babcock and Brown Wind which last week announced the sale of its Spanish wind farms (17% of its portfolio) despite swearing it had absolutely no debt problems. The stated reason for BBW putting assets up for sale in a buyer’s market is to prove the value of their valuations — “we’re selling the farm to prove the farm is worth owning”, or something like that.
More curiously, BBW doesn’t seem to know what it really wants to do with the money raised anyway — that’s still open to suggestion.
I’d suggest the poverty of its controlling shareholder is a mighty big suggestion. We hope to find out more when BBW releases its results tomorrow.