MIC seeks to free up cash for dividends

Macquaries’s New York Stock Exchange-listed infrastructure fund was expecting to use cash from one of its subsidiaries to fund a portion of its newly reinstated dividend, but a co-investor in the subsidiary, International-Matex Tank Terminals, has refused to distribute cash from the business. The firm has initiated a dispute resolution proceeding to free up the cash.

Macquarie Infrastructure Company (MIC), Macquarie’s New York Stock Exchange-listed infrastructure fund, has initiated a dispute resolution proceeding with a co-investor in one of its businesses in an effort to free up cash for its newly reinstated quarterly distribution, chief executive James Hooke told investors during a conference call Thursday.

The dispute centers over how much cash International-Matex Tank Terminals (IMTT), MIC’s bulk liquid storage business, should pay out to its shareholders. MIC owns 50 percent of the business, with a trust controlled by the family of IMTT chief executive Thomas Coleman owning the remaining 50 percent.

MIC had expected to use cash from IMTT to fund a portion of its quarterly dividend to shareholders, which was reinstated this quarter after a two-year hiatus during which MIC conserved cash to de-leverage its business.

During that time, MIC's the economic recovery propelled an increase of 57.5 percent in cash flow from MIC's businesses, totalling $145.7 million, or $3.19 per share in 2010. The improved cash performance allows MIC to “sustain” a dividend “for the foreseeable future”, MIC said in a statement last week.

The improved performance also prompted MIC to ask for more cash to be distributed from the IMTT business. But Coleman refused, prompting MIC to initiate a dispute resolution proceeding under IMTT’s shareholder agreement.

Hooke said on the call that the shareholders agreement is “quite clear” in how funds from the business are to be distributed and called the dispute a difference of opinion over “how to prioritize” the cash flowing from the business.

IMTT saw its cash flow nearly double from $77.1 million in 2009 to $146.7 million in 2010. At that level, IMTT no longer faces a binary choice between reinvesting its excess cash in growth or paying it out in distributions because it has “sufficient cash to do both”, Hooke said.

“The focus for me at the moment is resolving the distribution situation for that business,” Hooke added. He did not rule out that the dispute could go to arbitration, which could take between six to 12 months.

Assuming that the dispute is resolved, Hooke said MIC’s dividend, reinstated last week at 20 cents per share, could nearly double to 37.5 cents per share. At MIC’s current share price of $23.74, that would imply an annual yield of approximately 6.3 percent for MIC shareholders.

Analysts quizzed Hooke on how MIC’s growth plans could be impacted by the unrest in the Middle East, which sent oil past $100 per barrel. Hooke said the unrest would have no “direct” impact on MIC, but he acknowledged that one of its subsidiaries, Atlantic Aviation, which services aircrafts at airports, might see lesser business volumes if oil prices keep climbing.

“It just seems axiomatic to me that when energy prices rise to $140 dollars a barrel, the economy suffers and accordingly there’s going to be less general aviation activity,” Hooke said.

MIC shares were down 0.9 percent on the day’s trading as of press time, standing at $23.74 per share.