Sydney Stock Exchange-listed Challenger Infrastructure Fund (CIF) has sold one-third of its stake in UK water utility Southern Water, worth £100 million (€107 million; $149 million), to an undisclosed institutional client of UBS Global Asset Management.
UBS Global Asset Management will manage the stake on behalf the client. The client is also invested in the UBS International Infrastructure Fund, which, together with JPMorgan, invested alongside CIF in their October 2007 buyout of Southern Water for £4.2 billion.
The £100 million sale price was completed at CIF’s 30 June 2008 net asset valuation of its interest in Southern Water.
“The logic behind us selling our stake was basically to give us flexibility. We had a number of capital management issues we had to manage,” Steve Bickerton, chief executive of CIF, told InfrastructureInvestor.
Chief among those issues was repaying half of CIF’s £97.9 million of redeemable preferred shares, which were trading out of the money but were highly dilutive to shareholders, Bickerton said. Their outstanding balance will be extended by 12 months to April 2011 and refinanced into A$118 million (€58 million; $81 million).
Bickerton earmarked approximately A$70 million of the remaining proceeds for an on-market buy-back of up to 10 percent of CIF’s approximately 350 million common shares outstanding. At today’s price of A$1.6 per share, that would cost CIF approximately A$56 million (on an undiluted basis).
Our net asset value of A$4 is quite reasonable, so I don't know why we trade at A$1.6. It's the question no one can answer at the moment.
Like many listed Australian infrastructure funds, CIF has seen its shares plummet in the wake of the global financial crisis. Year to date, its shares are down 56 percent. Bickerton believes “the listed space has been oversold and is trading well below net asset value”, which for CIF he estimates at A$4 per share.
“Our net asset value of A$4 is quite reasonable, so I don’t know why we trade at A$1.6. It’s the question no one can answer at the moment,” Bickerton added.
Asked whether the depressed share price was the result of investor pressure for de-leveraging, Bickerton responded that CIF has already de-leveraged significantly this year. As of September, the firm paid off all of the debt it held at the fund level, which included A$495 million it drew from a syndicated senior debt facility to fund the Southern Water acquisition. Its remaining debt is all non-recourse asset-level debt.
The sale will decrease CIF’s interest in Southern Water to around 16 percent. The combined stakes of UBS’ client and its International Infrastructure Fund will make UBS Global Asset Management’s interest roughly equal that of JPMorgan, which originally invested £360 million in Southern Water for a 32 percent stake.
The sale also marked the first significant transaction of this for type UBS Global Asset Management, which regularly talks to its clients about co-investment opportunities and is keen to do more of them, according to a person familiar with the matter.
Shares of CIF ended the day unchanged at A$1.6 per share.