Macquarie International sells unlisted infra fund stake

The Singapore-listed Macquarie International Infrastructure Fund is to sell 71.6% of its holding in the unlisted Macquarie European Infrastructure Fund to a group of undisclosed investors for S$132m. The proceeds will partly go toward paying off the firm's debt.

Singapore-listed Macquarie International Infrastructure Fund (MIIF) has sold the majority of its holding in an unlisted Macquarie infrastructure fund in order to pay-down a part of some of its debt.

MIIF said in a stock exchange filing it had agreed to sell 71.6 percent of its interest in the Macquarie European Infrastructure Fund (MEIF), equivalent to a 4.5 percent stake in the fund, for a cash consideration of A$132 million (€63 million; $94 million).

John Stuart, the head MIIF's management, said in the statement that the sale is aimed at closing a gap between MIIF's share price and its director's valuation of its business. He also said that the firm is likely to sell its remaining stake in the fund in the near future.

MIIF will realise an internal rate of return of 5.5 percent from the investment upon exit, according to the statement. MIIF said it does not need its shareholders' approval to make the divestment since it falls within the course of its ordinary business.

Corporate governance advisory firm RiskMetrics Group has previously criticised inter-fund transactions between various entities managed by the same firm due to the potential for conflicts of interest that arises from such arrangements. In a report issued last year, the firm urged more transparency and disclosure of inter-fund arrangements such as priority protocols with regard to whom it must offer its interests to when divesting them.

MIIF said its divestment was negotiated “on an arm's length commercial basis” with MEIF. It said the buyers would be a group of undisclosed financial investors.

MIIF had acquired the interest in the fund for S$139.5 million in July 2005. In the statement, MIIF said that a portion of the proceeds from the sale will repay the drawn balance of its debt facilities, which amount to around S$19 million. It said the remainder would be retained to provide MIIF with “balance sheet flexibility”.

This would give it options such as reinvesting the proceeds, doing a share buy-back or the paying a special dividend, according to the statement.

Macquarie hasraised three European infrastructure funds – MEIF I, MIEF II and MEIF III – which have closed on €1.5 billion, €4.6 billion and €1 billion, respectively. MIIF's website indicates that it was an investor in the first fund, which held its final close in June 2005.

MIIF shares ended the day at $.410 per share, or down about 12.3 percent, according to the MIIF website.