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MIIF: Realising value.

Tuesday, December 18, 2012

The last time I blogged about MIIF was more than two years ago although I would reply to readers' comments or emails about the counter from time to time since. I have a long history with MIIF. It was recommended to me by a friend and I got in at a unit price of $1.00. Yes, no kidding.

See the elusive Mt. Fuji?
It seems that MIIF's value will elude unit holders no more.

Through the GFC, MIIF's unit price sank and the lowest unit price I bought some at was 29.5c on 6 January 2009, if my records are accurate. I bought more over a 6 months period from then as its unit price rose to 35.5c. Coming out of the GFC, MIIF strengthened its balance sheet through certain divestments, rationalised its portfolio and concentrated on Asian assets. Its DPU also improved.

As I was convinced that S-REITs were deeply undervalued and, for me, they are also easier businesses to understand, my investment in MIIF was not nurtured further.

By middle of this year, undervalued S-REITs were hard to find except for a small window of opportunity when Saizen REIT's unit price sank 15% in May/June. As regular readers know, I was also putting money into stocks looking for possible capital gains by then since it was harder to expect that from S-REITs going into the future.

It was around the same time that I increased my investment in MIIF at 51c/unit. Relatively strong balance sheet, NAV/unit at about 70c and a DPU of 5.5c per annum. Frankly, if not for the lack of options in S-REITs, I would probably not have increased my investment in MIIF as the fund owns myriad businesses in various countries and it is not as easy to understand as the S-REITs in my portfolio.

Today, I received an email from MIIF:

The Board of Macquarie International Infrastructure Fund Limited (MIIF) today announced the completion of the Strategic Review which was initiated in June 2012.

The Strategic Review, which included an assessment by CIMB Bank Berhad, Singapore Branch (CIMB) and consultation with a cross section of shareholders, generated a number of key observations. After considering these observations and assessing the alternatives available to MIIF, the Board has concluded that in order to maximise value for MIIF’s shareholders the strategy for MIIF should change.

As a result, the Board has decided to undertake the following initiatives:

  • Distribute existing excess cash to shareholders as a one-off special dividend;
  • Commence a joint process with Macquarie Korea Opportunities Fund (MKOF), MIIF’s TBC co-shareholder, to realise maximum value for their investment in TBC;
  • Pursue the orderly divestments of MIIF’s interests in HNE, CXP and Miaoli Wind;
  • Distribute proceeds from any divestment to shareholders as soon as practicable; and
  • Allow MIIF’s corporate-level debt facility to lapse upon maturity.

These initiatives have been formulated with a focus on maximising and returning value to MIIF shareholders. The Board will endeavour to execute these initiatives in a timely manner; however, these initiatives involve complex processes which will require active management and prudent actions to safeguard the interests of MIIF shareholders.


Good news for unitholders. Well, Mr. Market seems to like it anyway.

Related post:
MIIF: Seeing value.

46 comments:

opal said...

Congratulations AK
Let's see how much cash MIIF can return after selling off the other businesses.
I was fortunate to catch the boat by adding more MIIF last week.

AK71 said...

Hi opal,

You are nimble footed! :)

For now, I will look forward to the one off special dividend. I wonder how much would that be? In time for some Chinese New Year expenses? ;p

look-good-feel-good.com said...

Hi AK, I hv been following the few stocks you recommended since I stumbled upon your blog a month back... I thought I would monitor first before going in next year! I always think stock prices are higher at year end due to window dressing by fund houses :)

anyway, but saw your blog post today on MIIF so I just went in and bought some to stay invested ... I saw the jump in price in MIIF this morning, was scratching my head why, so headed over to your blog and the answer was there !! hahah thanks for sharing.

AK71 said...

Hi LGFG,

Welcome to my blog. :)

I hope you did your due diligence before investing in MIIF. Take everything bloggers say with a pinch of salt. ;)

Yihhtan said...

Hi AK,

I'm piss off with mgt of MIIF!

Out of a net profit of roughly 60m-70m we paid management fee of 10m and now you need a strategic review to tell you all that?

Beside the 10m mgt fee, you have now incur additional cost to engage outside party to do a review! Then why do we pay them so much management fees for?

Anyway I've sold off most of my MIIF share after ex-div. I'm holding on to some odd lots just to see some fun :)

cheers, YH Tan

AK71 said...

Hi YH Tan,

Your grievances are definitely valid. Well, water under the bridge now, I hope. Now, I am looking forward to the special dividend. :)

AK71 said...

Macquarie International Infrastructure Fund’s (M41.SG) strategic plan is a move to divest its portfolio’s smaller investments and return proceeds and excess cash to shareholders, with the fund focusing on a single core business, Taiwan Broadband Communications, SIAS Research says.

“This move comes at an appropriate time where the market is searching for yield.” It expects MIIF may issue new shares to Macquarie Korea Opportunities Fund for its TBC stake to take full ownership, or that both entities could sell their stakes together.

SIAS estimates MIIF’s excess cash at around $60 million, while the sale of stakes in Hua Nan Expressway, Changshu Xinghua Port and Miaoli Wind could improve distributable cash by $102 million, $140 million and $1 million respectively; it estimates total distributable cash at around $303 million, or 26.2 cents a share.

It now values MIIF at $0.71; it rates the stock at Invest. The stock is up 5.1% at $0.62.


Dow Jones & Co, Inc
Tuesday, 18 December 2012 14:56

AK71 said...

AmFraser is positive on the plan; it estimates MIIF’s net tangible asset value at around $0.72 after forex effects, substantially above the share price, with the house setting a $0.68 fair value. “MIIF’s liquidation of its assets is likely to provide greater reward potential for shareholders.”


Dow Jones & Co, Inc
Tuesday, 18 December 2012 14:54

look-good-feel-good.com said...

Agree AK always do your own homework ! But still glad you shared your insights ! actually I was keen on the reits in the middle of the year but I was looking for passive income on a monthly basis ( call me crazy!) so I went into fidelity high yield fund that gives monthly payout works out about 6% yield pa :) not great but I like the monthly checks hahha! I bought miif as it seemed even worst case scenario downside limited. Same as the letter published by the 66-year-old retiree I hv been burnt by stock market has an aversion but reits is great alternative cheers !!

AK71 said...

Hi LGFG,

I am not familiar with Fidelity High Yield Fund. Actually, I have not put money in any unit trust in years. What do they invest in?

I was burnt by Mr. Market too. Ouch. Read my story? :(

CS said...

It is certainly good news about MIIF divesting its assets and returning funds to shareholders. I have held MIIF shares for few years now though not quite understand its financial reports, and at times thinking of selling off because of inability of management to invest in new business. It is time now to reward shareholders for their patience. First is to return the cash by way of special dividends of about 5% per share. But the divestment of other assets would certainly take much longer time. So we still have to wait. And I don't think it make sense for MIIF to just invest in a single asset i.e. TBC.
C.S.

AK71 said...

Hi CS,

I am very curious how the whole thing will turn out.

Giving out the excess cash to unit holders is a good idea but divesting all its other businesses with the exception of one just to return the capital to unit holders sounds a bit less sensible, especially if they are generating good cash flow.

Will wait and see.

yeh said...

hi AK,
congratulation.

i am monitoring IFS recently, can share your view?

thanks

AK71 said...

Hi yeh,

Thanks. :)

IFS? I am afraid I don't know anything about this one. :(

CS said...

Hi AK, MIIF will be delisted in the end when all its assets are divested. This is reported today in the ST. MIIF will become history sooner or later. The issue is whether we can get back the NAV of about 70cents. So you are right, we wait and see. Hope it is not like "tan-ku-ku" (wait long long).
C.S.

Unknown said...

i liked the yield by MIIF, given the new actions by mgmt where do i find the next counter w/ good yield?

AK71 said...

Hi CS,

I am hopeful that MIIF would be able to sell some, if not most, of its businesses at above valuation. Businesses with good earnings are highly sought after and buyers are usually willing to pay a premium to valuation. Miaoli is the exception here and could be sold for a song.

MIIF's management does not seem to be very entrepreneurial. They seem to be more custodial in behaviour. So, I am not optimistic that the divestments would be expeditious.

Management fee is also linked to the unit price of the fund. I attended an AGM and remember the ex-CEO saying that if the unit price were to fall below 20+c, the management would end up paying unit holders to manage the fund! So, the continual share buy backs were not solely for unit holders' benefit. It was also for the benefit of the management.

If the unit price of MIIF should somehow equal its NAV/unit in future, I could possibly divest partially.

AK71 said...

Hi Unknown,

Indeed, this is a question which unit holders who are vested in MIIF for income will have. Haha... ;)

There are alternative investments available. Just have to see if they are suitable for you. :)

Andy said...

Hi AK,

Recently I started looking at UMS for passive income.

Its dividend for 2012 and 2011 is $0.06 and its current price is $0.41.

That is a yield 14%!

But i am not familar with reading the financial report nor the tech industry.

Can any expert comment on this company!

http://www.reuters.com/finance/stocks/financialHighlights?symbol=UMSH.SI

AK71 said...

Hi Andy,

I am not familiar with this one and my plate is full. So, will see if any reader is able to throw light on this for you. :)

opal said...

I am investing for income. So I will have to look for alternatives. Before I find it, I will most likely hold on my lots to receive dividends. As long as the divestment doesn't take place, it will continue to receive healthy profits from these businesses. And I should continue to be paid at a reasonably good dividend

AK71 said...

Hi opal,

Due to government intervention in HNE, I would be more conservative in my estimate of future DPU. All else remaining equal, a 10% to 15% reduction in DPU could take place. So, we could see future DPU at 4.7 to 4.95c instead of 5.5c.

opal said...

Hi AK
Thanks for the info. I do it will adversely impact the dpu though I am hopeful the traffic growth will eventually compensate the toll rate cut.
Dpu of 4.7c is still good enough for me, based on my average purchase price.
(I am late into investing for income, so my choice of high yield stocks are somehow limited and I need to calibrate my expectations accordingly)

AK71 said...

Hi opal,

I feel that you got it cracked! Good on you. :)

Whenever people ask me if the current price is good to enter, I would always tell them that if they are happy with the yield at the current price and if they are happy with all the numbers, then, it is a good price. ;)

look-good-feel-good.com said...

Hi AK, yup I've had bad experience with unit trusts too (worse, it was insurance-linked unit trusts! hahaha. I was so very ignorant about financial stuff, still am but that's why reading up more now and learning from others like you guys. The fidelity fund invest in bonds issued by companies with asian focus (BB plus). I bought it via poems without incurring any sales charge :) the other fund I looked at was Eastspring (monthly plan) but it's been on the uptrend passed $1 so the yield has fallen to below 5%. Btw, you can call me EL! cheers

AK71 said...

Hi EL,

Ah, bonds. I always find it a bit strange when people tell me they invest in bonds because, to me, bond holders are lenders and not investors. ;)

BB+ is the highest speculative grade awarded by S&P. This explains the relatively high yield. BBB is the lowest investment grade awarded.

If you are interested in knowing more about the gradings, see:
http://www.standardandpoors.com/ratings/definitions-and-faqs/en/us

Personally, I feel that a 6% coupon is somewhat low for a speculative grade bond. Of course, the fund manager has to be paid fees. The unit holders are taking on all the risk as lenders. The fund managers will take their cut, no matter what.

AIMS AMP Capital Industrial REIT was awarded BBB- this year in April and Sabana REIT was awarded the same rating last year in August. Both of them at the time had distribution yields of >9%, much higher than 6%.

I hope you have done your due diligence and looked into the companies whose bonds the fund is holding. If you have done so and you are happy with the numbers, please ignore this busy body. :)

yeh said...

AIMS AMP Capital Industrial REIT and Sabana Reit still can buy now?
are they two expensive right now?

thanks

AK71 said...

Hi yeh,

I believe that both REITs are now fairly valued. They are no longer cheap.

If you are happy with their distribution yields at current prices, then, they could still be good for you. :)

You might want to read my past blog posts on the two to get a feel of things.

AIMS AMP Capital Industrial REIT: 2Q 2013.

Sabana REIT: 3Q 2012.

Andy said...

Saizen seems to be under pressure recently due to Abe policy of depreciating Yen.

Yen is not at year low. Do you think it is still advise to say vested in Saizen?

AK71 said...

Hi Andy,

A friend sent me a SMS on Saizen REIT earlier this morning. I am about to publish a new blog post on the REIT. ;)

AK71 said...

Macquarie International Infrastructure Fund (MIIF) will distribute excess cash as a special dividend and divest three assets following a review by its adviser CIMB Group Holdings Bhd. (CIMB) The fund has about S$60 million ($49 million) in cash, according to Chairman Chiang Meng Heng.

“We were looking at narrowing the discount,” Heng said in an interview in Singapore yesterday. “It will be very, very difficult to close the gap between the share price and the net asset value given current market circumstances, so we decided to return money back to shareholders.”

half-year dividend is usually paid in February and the special payout could also be made at the same time, Heng said, declining to give a specific date for the distribution.

“It’s a positive move as investors should now get the net asset value or a premium to NAV,” Sandy Mehta, chief executive officer of Value Investment Principals Ltd., said in a phone interview yesterday. “With the regular and special dividend, the payout should be between 6 cents and 8 cents.”

The asset sales could result in a payout of between 75 cents and 80 cents, he estimated. Mehta bought the Macquarie fund’s units this year, he said.


Bloomberg, 20 Dec 2012.

Unknown said...

Talking about MIIF, I attended a meeting and met a fellow investor.

Something he said caught my attention.

He said that if you are an investor interested in distribution income, you will hope that the share (unit)remain undervalued so that you can continue to reinvest the distribution in the same company to get the high yield.

KH53

AK71 said...

Hi KH53,

That is a sensible remark and works in certain cases, no doubt. :)

Perhaps, we should all look harder at Saizen REIT? Haha.. I speak in jest. ;)

AK71 said...

We expect a one‐off special dividend of 4.03 cents per share, on top of a regular dividend of 2.75 cents per share, to be distributed in February 2013. Excess cash available for distributions should amount to approximately S$46.4mil.

Current valuations for MIIF’s assets are certainly not demanding, with CXP, HNE and TBC valued at S$101.6mil, S$140.2mil and S$492.8mil respectively. We believe MIIF is unlikely to face significant difficulties in offloading its assets at current valuations and could potentially realise a slight premium over its current valuations, given the yield‐hungry climate and the assets’ strong cash flow generation. The recent deals of Taiwanese cable TV operators Kbro and China Network Systems were completed at EV/EBITDA multiples of 11‐12 times, which could serve as a benchmark for TBC’s valuation. TBC has a EV/EBITDA multiple of 10x.

We raise our fair value for MIIF to 70.0 cents per share from 68 cents, and may make further adjustments pending further visibility on asset divestment plans.


AmFraser, 8 Jan 13.

AK71 said...

Net income of S$57.4 million up S$9.2 million on prior year

Net Asset Value of S$807.6 million or S$0.70 per share

Robust operational performance across the portfolio, however the adverse impact of the toll revisions at Hua Nan Expressway will continue

Strategic review completed and initiatives focused on maximising and returning value to shareholders announced

Final dividend of 2.75 cents per share and special dividend of 3.00 cents per share declared


MIIF's financial results for the twelve months ended 31 December 2012.

AK71 said...

Macquarie International Infrastructure Fund Limited (MIIF) will amend its management fee structure in order to return value to shareholders, as it prepares to sell its assets and wind down the company.

look-good-feel-good.com said...

Hi AK I read parts of the report - the board has valued the company at only $700 million plus and has benchmarked the success fee for the manager at 95% of their valuation - essentially pulling down NTA to $0.60- 0.62. Hmmm what do u think ? I feel the reduction in management fee is step in right direction ( implying more cash for distribution ) but the divestment threshold is set too low though in my opinion ... They should make Mim work harder ! But they lumped the amendments together ... sneaky ... My reading might be wrong cuz I m learning to read these financial number a newbie at this ! Appreciate your insight on this.

AK71 said...

Hi EL,

I feel that they are being conservative. If anything, I feel that good income generating assets should be sold above valuation.

With all the steps announced so far, the management seem quite genuine in their efforts to get into unitholders' good books.

So, I will wait and see. :)

AK71 said...

Date: 21 February 2013
On behalf of SIAS, I met with the Non-Executive (Independent) Chairman of Macquarie International Infrastructure Fund Limited (“MIIF”), Mr Heng Chiang Meng and Mr Oscar Ludwigson of CIMB Bank, Independent Financial Adviser to MIIF, at their requestm earlier today during which MIIF updated SIAS on the strategic initiatives implemented by MIIF to generate value for its shareholders.

The discussion follows an earlier dialogue session in December 2012, during which MIIF briefed SIAS on a change in strategy to pursue an orderly divestment of MIIF’s infrastructural assets for the purpose of generating and returning value to MIIF shareholders.

SIAS is pleased to be updated that MIIF is making good progress in executing the identified strategic initiatives to deliver value to MIIF shareholders. We also noted that MIIF has distributed excess cash to shareholders by way of a one-off special dividend of 3.0 Singapore cents per share to shareholders in mid-February and also successfully negotiated an early termination of its undrawn corporate-level debt facility with United Overseas Banks, thereby reducing MIIF’s operating expenses.

In addition, SIAS was also advised that the Independent Directors have completed their discussions with MIIF’s Manager and finalised a revised management fee arrangement that will be better aligned with the new strategy of orderly divestments, to maximise value for MIIF shareholders.

MIIF’s shareholders should be happy that the MIIF Board has continually taken proactive steps to connect with the retail investing community to update on its progress. SIAS notes that the MIIF Board had acted promptly on its strategic initiatives to return value to its shareholders.

SIAS has reviewed the proposed management fee revision and noted that it is now better aligned to MIIF’s new strategy of orderly divestments. SIAS is also satisfied that MIIF has sought independent counsel from CIMB and KPMG as Independent Financial Advisors to ensure that the revised management fee structure is not prejudicial to the interest of MIIF shareholders.

David Gerald
President / CEO
SIAS


look-good-feel-good.com said...

Ok thanks AK for the additional info ! Goodnight !

AK71 said...

Hi EL,

No problem.

I just read David Gerald's letter before I read your earlier comment. Talk about a coincidence. ;)

AK82 said...

Hi AK,
At first, I would like to express my gratitude to your selfless sharing through this blog. It's really enjoyable to read.

And I have this question.
MIIF is trading at $0.575 now and with 2x 2.75ct dividend. The yield is attractive, do you think current price is a good entry point? Do you see any negativity in MIIF moving forward?

Thanks. Really appreciate if you are able to advice.

AK71 said...

Hi AK82,

Yikes! I don't give advice. I am not allowed to. So, I am not about to start.

I will ask you to find out if the 2.75c half yearly dividend is sustainable. Hint: look at its expressway concession in China.

If you do not think that the dividend payout is sustainable, then, is the estimated lower dividend payout still attractive enough for you?

Lastly, bear in mind that MIIF is going to sell its assets in stages. So, look at its NAV/unit. Is the discount to NAV enough to provide a margin of safety for you?

I hope to receive advice from you soon. ;)

AhJohn said...

Hi Ak, did you re-visit MIIF? Don't quite understand the price drop at May. Was it because of split?
Btw, after that, yield is still ~9%.

"As set out in the Circular, if the Proposed Divestment completes, the consideration payable to MIIF will be the MIIF APTT Units and pursuant to the Proposed Distribution, Shareholders will receive their proportionate share of the MIIF APTT Units (fractional entitlements to be disregarded) or Shareholders can elect to receive in cash all, but not part of, such entitlement (Entitlements) based on the Offering Price (the Cash Election).

For the purpose of determining the entitlement of Shareholders to MIIF APTT Units, the record date (the Record Date) is 5.00 p.m. on 9 May 2013. The first day of ex-Entitlement trading of MIIF shares will be on 7 May 2013."

AK71 said...

Hi Ah John,

I think the last time I blogged about MIIF was in May: MIIF: Lower fair value.

Obviously, Mr. Market didn't like my analysis. Well, too bad for me since I have fully divested. :(

AK71 said...

ASIA-FOCUSED infrastructure company Macquarie International Infrastructure Fund (MIIF) on Friday announced it has agreed to sell its 81 per cent effective interest in Hua Nan Expressway for a total cash consideration of S$110 million, following which it will delist from Singapore Exchange (SGX) and wind up.

Source:
http://www.businesstimes.com.sg//companies-markets/macquarie-international-infrastructure-fund-to-sell-hua-nan-expressway-stake

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