Brookfield infrastructure to book $270m gain from Brazilian exit

Brookfield Infrastructure Partners (BIP), a publicly listed infrastructure fund managed by Brookfield Asset Management, has exercised an option to sell its minority interests in a group of five Brazilian electricity transmission investments for estimated after-tax proceeds of $270 million (€184 million).

Aaron Regent, co-chief executive officer of Brookfield’s infrastructure group, said in a statement that the minority position in the assets “was not a strategic investment for Brookfield infrastructure” and that the firm is evaluating a number of investment opportunities to redeploy the proceeds.

With a book value of $195 million, the investments represented approximately 22 percent of BIP’s asset portfolio as of 30 June 2008. As a whole, the fund has 60 percent of its portfolio in transmission assets and the remainder in timberlands.

“While this action was widely expected, we view BIP’s decision to exercise the put as a modest positive,” Brendan Maiorana, an equity research analyst at Wachovia Capital Markets, wrote in a research note.

“[It] signals that management is confident that it will be able to redeploy proceeds into new opportunities,” Maiorana wrote.

Among those new opportunities Maiorana names timberlands in the Pacific northwest, though he believes that the deal size is likely to be well below the net proceeds from the sale. He estimates that the company has $550 million of asset purchasing power from the proceeds and will realise a 40 percent IRR internal rate of return on the two year investment.

Brookfield Asset Management listed BIP on the New York Stock Exchange in early February at $20.19 to focus on infrastructure investments primarily in Organisation for Economic Cooperation and Development-member states, such as the UK.

Since then, like many other publicly listed infrastructure funds, the stock has been trading at a significant discount to book value. As a result, on a fully diluted basis, the sale of the Brazilian transmission assets equates to a value of $7 per share, or nearly half of its current share price.

The fund is 50 percent owned by Brookfield Asset Management and its employees and directors. Besides infrastructure, the company manages property, power generation and other specialty funds, with total assets under management of $95 billion.

BIP shares ended the day down .33 percent, closing at $15.30.