Macquarie International Infrastructure Fund

[Nick]

hi Nick,
my 2cents worth here (i believe some others have similar conclusion)
- There is no incentive for MIMAL to recycle assets nor capability to do so anymore - for whatever hypothesises others hv already provided.
- To show it is bringing value AND increasing mgt fee, share buyback looks to satisfy the best of BOTH worlds in the short run.
- It needs to get back the market's confidence by continuing been prudent and proves its dividend sustainability (can it still provide 5.25cents/yr beyond 2014 where TBC starts repaying its debt again?), until the day it can resume its asset recycling strategy again..hehe

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hi Qiaofeng,
i agree with all of ur observations/comments with the exception of below:
(1) The majority of price increase (causing narrowing of NAV discount) came from the general market recovery since March2009, esp fears that Mac group wasnt going bankrupt subsisided. Sharebuyback started in Mar2011, slide10 shown that since that time, it barely moved, instead price went down! (i suspect this is because ppl who previously bought in, hoping for some immediate cash back from its 37cents/share cash hoard were disappointed it wasnt going to give a special dividend). Therefore, share buyback did not cause share price and market cap to rise.

(2) Based on the prudent way that Mgt has handled its 37cents/share, i have the thumbs-up for its performance in the past 2 years. In fact, if it had continued its asset recycling, i would hv sold out (whether is it a loss or profit), since it doesnt meet my 'dividend play' criteria anymore.

I agree with the statements in bold.

For the statements underlined, my response is....

OK, so shr prices did not actually rose on that chart.
But, if U look at MIIF daily charts from Mar 2011 to today.
U will see the shr buyback pushed prices from 0.525 to 0.620, dropped to a low of 0.46 in the present crisis and rose back to 0.5/0.49 today.Would that have happened w/o the buybacks?

IMHO, the share buybacks definitely help prevent the shr price from falling further vs NAV, then w/o. Hence, preventing Mkt cap from faliing further as during GFC. Concerning the plot, maybe my choice of words were not accurate.
In the GFC, the max discount to NAV was 76%.
In the current Eurozone sovereign debt crisis (add US debt crisis), the max discount is at 42% (0.46 vs NAV 0.79).


Compared with buybacks, the cash is better reserved for deployment in acquiring more accretive infra plays which is what the MIIF biz model is about.

The effect of the buybacks maybe temporary in a prolonged Eurozone debt crisis where fundamentals don't matter in Mr Market's mind; so management should NOT spend time defending that shr price.
That they do so is negative and again I blame the fees incentives scheme as self serving (MIMAL) rather than pro-shareholders.

I think you made an error in the bolded statement - MIIF only started to repurchase shares on 18 March 2011 at 57.5 cents per share. There was a 2 weeks rally to 62.0 cents before people took advantage of the Fund's generosity and started to sell it down back to 58 cents. It could also be attributed to the release of TBC circular which shows the loan repayment plan in mid April. It kept dropping since then since 1) The Company value is declining as cash flows away permanently and 2) Potential debt crisis in the macro-world.

I don't see how the share buy back would benefit MIMAL in any way. It decreases cash, decreases the value of the Fund, decreases the market cap, decreases its potential in making a new investment etc. The only good thing they can derive from it is winning goodwill from the investor community since it is a risk free way of boosting DPU (as opposed to buying something with a lower yield). Share buy-back/special dividend is just another way of downsizing the fund permanently (till another equity fund raising is conducted). A downsized fund cannot possibly earn higher management fees. We have to face the possibility that this is what MIIF could possibly look like in the future - smaller portfolio, smaller equity, smaller cash pile and larger NAV, DPS etc.