16-10-2011, 06:03 PM
Nick, Weijian, KM,
Plse refer..
http://www.macquarie.com/dafiles/Interne...o-2011.pdf
Look at PDF slide 10, plot of discount to NAV.
a) NAV (Dec07) was SGD 1.28
b) NAV (Jun11) was SGD 0.8
Ratio of a/b is 0.625, i.e. 37.5% NAV was destroyed due to inept management.
As a FoF, a fund managing investments/ allocation to the sub-funds, U expect that MIIF would buy low and sell high. Not the case.
W/o share buybacks, the discount to NAV was 76%, with share buybacks discount to NAV dropped to 22%.
Buying back 5% of outstanding shares cause a >50% reduction in discount to NAV.
Nick,
The plot shows beyond doubt that with share buyback, the Mkt Shr Price and hence Mkt Cap rose.
Ur discussion on valuation following share buyback is based on EMH (Efficient Market Hypothesis) and that mkts are rational. If they are, there will be no discount to NAV!!
Mr Mkt decided, what U and I (Value Investors) think are sometimes immaterial.
The truth of the matter is that mkts are driven by emotions i.e. behavioural economics . Read Schiller & Taleb.
IMHO, sharebuy backs are good if U have a strong biz franchise making good profits coupled with excess cash hoard and no better way to use that cash in biz growth. It then makes sense for a strong management at the helm to justify buying their own shares as they believe that doing so will create value for shareholders-- reduce outstanding shrs will raise higher.
Not in MIIF case, when the biz model is impaired and the cash is really meant for biz acquisitions.
Nick, KM,
As Nick pointed out, MIIF is Net Cash at the fund level but at the asset level, the fund is geared.
This is as it should be. Gearing in not necessarily bad. Certain bizs require commensurate gearing to give even better returns, provided the debt profile and risks are properly hedged.
MacQ Group pioneered the infrastructure (infra) biz model.
Buy good almost riskless infra bizs such as broadband, toll roads, tankage etc with good (almost guaranteed) operating cashflows and pay good divds from that cashflow. The high Capex at the front end is financed by a mix of funds (loans and equity from MacQ affiliated entities). By use of SPVs (Special Purpose Vehicles) the debt is non-recourse at the fund level; supposedly insulating the investors in MIIF from the debt taken by the funds/assets that MIIF invests in.
So far so good, the biz model worked for many years until the GFC.
Shorts (Chanos etc) smelled a rat and started attacking the mother MacQ and associated entities. With the mother in siege and funds tight, a liquidity crunch ensues and the MacQ affiliated entities could not roll over their debt upon maturity. As in Arqiva, they sell at distressed prices.
So while debt may be non-recourse; to avoid collapse of MacQ related entities, MIIF acquiesced to the sale of assets like Arqiva and CAC -- translated into the 37.5% destruction of NAV on MIIF.
An additional point about the MacQ biz model is the highly criss crossed complex and opaque nature in which the SPVs and the various funds hold stakes in each other biz and is difficult to trace on the B/Ss.
So the transition to an Asian based asset owning biz model is simpler and more transparent.
Weijian,
Ur hope is in MIIF staying as a divd play.
Accepted.
If U buy at low price, during the GFC, the divd yield looks good; and if the current spate of problems are resolved and MIIF turns around, U get share price appreciation and divds; provided MIIF does not become a value trap, as I explained.
But from a biz model point of view, the change from being a FoF to being a 100% owner of assets may mean that the non-recourse nature of debt is no longer applicable. Miaoli debts are 100% MIIF debts.
That they failed in due diligence at the Miaoli windfarms is appalling!!
Hence, I think that a management change is overdue.
Plse refer..
http://www.macquarie.com/dafiles/Interne...o-2011.pdf
Look at PDF slide 10, plot of discount to NAV.
a) NAV (Dec07) was SGD 1.28
b) NAV (Jun11) was SGD 0.8
Ratio of a/b is 0.625, i.e. 37.5% NAV was destroyed due to inept management.
As a FoF, a fund managing investments/ allocation to the sub-funds, U expect that MIIF would buy low and sell high. Not the case.
W/o share buybacks, the discount to NAV was 76%, with share buybacks discount to NAV dropped to 22%.
Buying back 5% of outstanding shares cause a >50% reduction in discount to NAV.
Nick,
The plot shows beyond doubt that with share buyback, the Mkt Shr Price and hence Mkt Cap rose.
Ur discussion on valuation following share buyback is based on EMH (Efficient Market Hypothesis) and that mkts are rational. If they are, there will be no discount to NAV!!
Mr Mkt decided, what U and I (Value Investors) think are sometimes immaterial.
The truth of the matter is that mkts are driven by emotions i.e. behavioural economics . Read Schiller & Taleb.
IMHO, sharebuy backs are good if U have a strong biz franchise making good profits coupled with excess cash hoard and no better way to use that cash in biz growth. It then makes sense for a strong management at the helm to justify buying their own shares as they believe that doing so will create value for shareholders-- reduce outstanding shrs will raise higher.
Not in MIIF case, when the biz model is impaired and the cash is really meant for biz acquisitions.
Nick, KM,
As Nick pointed out, MIIF is Net Cash at the fund level but at the asset level, the fund is geared.
This is as it should be. Gearing in not necessarily bad. Certain bizs require commensurate gearing to give even better returns, provided the debt profile and risks are properly hedged.
MacQ Group pioneered the infrastructure (infra) biz model.
Buy good almost riskless infra bizs such as broadband, toll roads, tankage etc with good (almost guaranteed) operating cashflows and pay good divds from that cashflow. The high Capex at the front end is financed by a mix of funds (loans and equity from MacQ affiliated entities). By use of SPVs (Special Purpose Vehicles) the debt is non-recourse at the fund level; supposedly insulating the investors in MIIF from the debt taken by the funds/assets that MIIF invests in.
So far so good, the biz model worked for many years until the GFC.
Shorts (Chanos etc) smelled a rat and started attacking the mother MacQ and associated entities. With the mother in siege and funds tight, a liquidity crunch ensues and the MacQ affiliated entities could not roll over their debt upon maturity. As in Arqiva, they sell at distressed prices.
So while debt may be non-recourse; to avoid collapse of MacQ related entities, MIIF acquiesced to the sale of assets like Arqiva and CAC -- translated into the 37.5% destruction of NAV on MIIF.
An additional point about the MacQ biz model is the highly criss crossed complex and opaque nature in which the SPVs and the various funds hold stakes in each other biz and is difficult to trace on the B/Ss.
So the transition to an Asian based asset owning biz model is simpler and more transparent.
Weijian,
Ur hope is in MIIF staying as a divd play.
Accepted.
If U buy at low price, during the GFC, the divd yield looks good; and if the current spate of problems are resolved and MIIF turns around, U get share price appreciation and divds; provided MIIF does not become a value trap, as I explained.
But from a biz model point of view, the change from being a FoF to being a 100% owner of assets may mean that the non-recourse nature of debt is no longer applicable. Miaoli debts are 100% MIIF debts.
That they failed in due diligence at the Miaoli windfarms is appalling!!
Hence, I think that a management change is overdue.