Brookfield to double its infrastructure holdings

If its A$1.8bn recapitalisation of Babcock & Brown Infrastructure reaches financial close, infrastructure will comprise about 16% of Brookfield’s total assets under management, up from 8% currently. Brookfield’s Jeff Blidner says the deal will help the firm be ‘a major player in the infrastructure space’.

Brookfield Asset Management stands to double its infrastructure assets under management and transform the composition of its infrastructure portfolio if its A$1.8 billion  (€1.1 billion; $1.6 billion) recapitalisation of Babcock & Brown Infrastructure (BBI) is ultimately successful, according to a senior Brookfield dealmaker involved in the deal.

Jeffrey Blidner, a senior managing partner at the Toronto-based asset management firm, said the infrastructure assets that Brookfield will acquire as part of the transaction will take the value of its infrastructure portfolio from approximately 8 percent of its total assets under management to 16 percent.

We announced our intentions to become a major player in the infrastructure space and this will be of assistance in that regard

Jeff Blidner

Brookfield currently has approximately $88 billion of assets under management, according to the latest data provided by the firm to About $7 billion of that falls into infrastructure and the assets to be acquired from Babcock will add about $8 billion.

“I think it clearly is a significant transaction for us,” Blidner said. “We had announced our intentions to become a major player in the infrastructure space and this will be of assistance in that regard.”

Jeff Blidner

As part of the transaction, Brookfield will directly acquire BBI’s PD Ports business in its entirety and take a 50 percent stake in BBI’s Dalrymple Bay Coal Terminal in Queensland, Australia. It will also pay between A$625 million A$712.5 million to acquire 35 percent to 39.9 percent of the remainder of BBI’s businesses, which will give it indirect equity interests in seven more energy infrastructure, utilities and transportation assets in Australia, New Zealand, the US and Europe.

“This is a transaction that achieves a lot of different things for us in the infrastructure space,” Blidner said, adding that the acquisitions would be first of their kinds for Brookfield’s infrastructure portfolio, both geographically and in terms of sector focus. The firm’s listed infrastructure investment partnership, Brookfield Infrastructure Partners (BIP), has traditionally focused on timber and transmission investments in the Americas.

Blidner expects BIP to fund Brookfield’s portion of the equity for the deal, which also includes a $250 million security purchase plan and A$625 million institutional placement underwritten by Macquaire Capital and Credit Suisse. BIP might raise the money by doing a public share offering, Blidner said, though private sources of capital could also be tapped.

The firm is currently raising a $2.5 billion fund for infrastructure investment in the Americas, the Brookfield Americas Infrastructure Fund. However, because most of the assets being acquired are outside the Americas, the transaction would fall outside the fund’s investment mandate, Blidner said. He added that BIP is Brookfield’s “primary vehicle for making infrastructure investments”.

Wall Street analysts generally greeted the potential deal as a positive step for BIP. Early this morning, BMO Capital Markets raised its rating on BIP from market perform to outperform. At Wachovia, analyst Brendan Maiorana, who has an “outperform” rating on the stock, wrote in a research note that the transaction is a “net positive” both for BIP and for Brookfield Asset Management. BIP’s shares could gain up to $4 in net asset value from the deal, Maiorana wrote.

The news has sent BIP’s shares up 3.7 percent since the announcement of the transaction, closing on $17.17 on New York Stock Exchange Trading late Friday afternoon. Brookfield Asset Management’s Toronto-listed shares were down one cent from their level before the transaction announcement.

The transaction is subject to approval from BBI shareholders as well as approvals from lenders, governmental, regulatory and other transaction counterparties. Financial close is expected to take place in late November 2009.