26-09-2015, 12:29 PM
Well, a chapter had been closed and I hope that APTV Trust will be a better investment. I have taken APTV Trust shares instead of cash from MIIF and therefore the story lives on.
Frankly speaking, MIIF had been hit by the financial crisis but I wish to address the 3 risks highlighted by Nick and in particular with respect to MIIF.
1. Risky assets. The assets that MIIF had owned are not necessary all risky. It depends on the nature of those assets and they are acquired mostly for sustainable and predictable cash flows to fund dividend payouts. For example, ports and toll-roads are really depending on economic activities and regulated assets like pipelines and transmission towers are more stable but with little growth. MIIF also owned social assets like aged care homes which shows very resilient streams of income. The assets itself are not risky, but the price they paid was. For example, if I project economic activity to be vibrant and over-paid for those assets based on potential business growth, then I got screwed if asset prices drop after that. But that doesn't mean the assets I bought were risky. It only meant I bought over-priced assets in the first place.
2. Unstable cash flows. There is a difference between unstable cash flow and unstable dividend payouts. One must make the differentiation between these two. MIIF's assets on a whole doesn't exhibit unstable cash flows. But MIIF couldn't pay a steady cash flow because they over-geared in the initial years and have to divert cash flows from their assets to pay down debt, thereby reducing dividend payout in some years. Therefore, it is not fair to say that MIIF exhibits unstable cash flow. It is just that they have got the capital structure wrong and over-geared at fund level which resulted in unstable dividend payouts.
3. High leverage. While it is true that MIIF had high leverage at fund level in their initial years, they have reduced their leverage in subsequent years when they divest assets in Europe to focus on Asia. In fact, throughout the years, MIIF did not call for a rights issue even when their gearing were high. This shows that they had been able to de-leverage without asking shareholders for more money. We should give them credit for that. Other funds and REITs which were in trouble during the crisis had asked shareholders for rights issue to re-capitialize their balance sheet. In fact, MIFF sold assets, cuts dividends and use cash flow from their assets to pay down debt.
Of course, I also have doubts about some of MIIF's highly geared assets like Macquarie European Infrastructure Fund, Arqiva, Canadian Aged Care etc, their purchase of Miaoli Wind, Hua Nan Expressway etc and their management+success fees structure. But overall, I think they did ok, considering the challenges that they are facing.
Frankly speaking, MIIF had been hit by the financial crisis but I wish to address the 3 risks highlighted by Nick and in particular with respect to MIIF.
1. Risky assets. The assets that MIIF had owned are not necessary all risky. It depends on the nature of those assets and they are acquired mostly for sustainable and predictable cash flows to fund dividend payouts. For example, ports and toll-roads are really depending on economic activities and regulated assets like pipelines and transmission towers are more stable but with little growth. MIIF also owned social assets like aged care homes which shows very resilient streams of income. The assets itself are not risky, but the price they paid was. For example, if I project economic activity to be vibrant and over-paid for those assets based on potential business growth, then I got screwed if asset prices drop after that. But that doesn't mean the assets I bought were risky. It only meant I bought over-priced assets in the first place.
2. Unstable cash flows. There is a difference between unstable cash flow and unstable dividend payouts. One must make the differentiation between these two. MIIF's assets on a whole doesn't exhibit unstable cash flows. But MIIF couldn't pay a steady cash flow because they over-geared in the initial years and have to divert cash flows from their assets to pay down debt, thereby reducing dividend payout in some years. Therefore, it is not fair to say that MIIF exhibits unstable cash flow. It is just that they have got the capital structure wrong and over-geared at fund level which resulted in unstable dividend payouts.
3. High leverage. While it is true that MIIF had high leverage at fund level in their initial years, they have reduced their leverage in subsequent years when they divest assets in Europe to focus on Asia. In fact, throughout the years, MIIF did not call for a rights issue even when their gearing were high. This shows that they had been able to de-leverage without asking shareholders for more money. We should give them credit for that. Other funds and REITs which were in trouble during the crisis had asked shareholders for rights issue to re-capitialize their balance sheet. In fact, MIFF sold assets, cuts dividends and use cash flow from their assets to pay down debt.
Of course, I also have doubts about some of MIIF's highly geared assets like Macquarie European Infrastructure Fund, Arqiva, Canadian Aged Care etc, their purchase of Miaoli Wind, Hua Nan Expressway etc and their management+success fees structure. But overall, I think they did ok, considering the challenges that they are facing.