Monday, December 22, 2008

Net Asset Values of Infrastructure Funds are not Exaggerated

Often I read in the media that the values of real estate and infrastructure assets owned by listed and superannuation funds are exaggerated. That really these funds couldn't realise as much as the carrying values of the assets if they sold them. Today, Challenger Infrastructure Fund sold a £100 million stake in Southern Water at carrying value. Given this, this fund is extremely undervalued. NAV was estimated at $3.75 per share in June but the shares were last trading at only $1.60. Given the fall in the Australian Dollar and this sale at carrying value, it is unlikely that the NAV has fallen from this last reported figure.

"22 December 2008, Sydney - Challenger Infrastructure Fund (CIF) today announced that it has sold £100 million of Southern Water (representing one-third of CIF’s stake). The stake will be managed by UBS Global Asset Management, the manager of the UBS International Infrastructure Fund, on behalf of a major institutional client. Financial close occurred on Saturday, 20 December 2008. The sale price of £100 million (approximately $221.4 million1) for CIF’s equity interest was completed at the 30 June 2008 Net Asset Valuation (NAV). Proceeds from the sale will be utilised to repay 50% (or £50.4 million) of the redeemable preference securities (RPS) on issue, fund an on-market buy-back of CIF securities and potentially fund future opportunities within CIF’s existing assets or fund further capital management initiatives. CIF also announced an estimated interim distribution of 12 cents per stapled security for the six months ending 31 December 2008. The interim distribution, which will be fully funded from operating cash flow, ensures a clear alignment of securityholder returns with the underlying performance of the fund’s assets. Chief Executive of CIF, Steve Bickerton said: “Over the course of 2008 CIF has undertaken a number of capital management initiatives designed to maximise securityholder value. The first example was the sale of three minority assets at a collective premium to NAV earlier this year, highlighting the embedded value in the portfolio and reducing CIF’s net proportional debt by over $1.1 billion. The sale of a third of our interest in Southern Water at NAV is another example of CIF’s capital management efforts, resulting in de-risking and de-leveraging of the fund and a further $560 million reduction of CIF’s proportional net debt. “The sale of a third of Southern Water at NAV is a pleasing outcome for CIF, particularly in current volatile equity and financial markets. The transaction has given CIF financial flexibility to undertake an on market buy-back, repay 50% of the RPS and furthermore arm CIF with the capacity to fund future opportunities from within our existing assets. CIF will continue to actively manage its capital position for the benefit of securityholders,” concluded Mr Bickerton."

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