MIG makes last distribution boosted by ‘surplus funds’(2)

Shareholders of toll road investor Macquarie Infrastructure Group (MIG) can expect their future distributions to more closely resemble the firm’s cashflows.

The Sydney Stock Exchange-listed firm said in a statement the 10 cent per share distribution payable to shareholders on 14 August “will be the last distribution to be paid according to the policy whereby operating cashflow was supplemented by surplus funds to pay distributions”. Future dividends will avoid supplementary funds and will be “likely to reflect payments more in line with cashflow”, MIG said.

Surplus funds included proceeds from asset sales and debt refinancing.

Supplementing cashflows with these sources of income has helped MIG pay out a steady stream of semi-annual distributions to its shareholders for 12 years. It also helped fuel growth in its stock price: MIG’s shares more than doubled between 2000 and 2007.

However, the policy of supplementing distributions with other income is often criticised as “manufacturing” distributions and “financial engineering” since it allows a firm to pay out more cash to shareholders than its business is actually generating.

As debt has become more scarce, investor appetite for firms that pay out these kinds of distributions has all but dried up.

Last year, Sydney Stock Exchange-listed BrisConnections won a 45-year concession to develop a toll road in Brisbane. Construction was expected to last four years but the firm promised holders of its partially paid units – shares which require future capital installments – that it would pay them distributions in the meanwhile. The stock sold-off 60 percent on the day of its initial public offering and plummeted to $A.001 per share shortly thereafter.

Such scepticism has spread to the larger listed infrastructure sector as well. By the end of 2007, there were 23 listed infrastructure funds in Australia with a total market capitalisation of around A$45 billion (€25 billion; $33 billion) – a sum which more than halved to A$21 billion by March 2009, according to data from Bloomberg.

MIG, whose portfolio of toll roads includes interests in many flagship US assets such as the Indiana Toll Road and the Chicago Skyway, has suffered a similar fate. Its shares have fallen about 67 percent since its March 2007 peak of A$3.94, most recently closing on A$1.3 per share.

Earlier this year, Macquarie Group – MIG’s manager – announced that MIG, Macquaire Airports and other Macquarie-managed funds have various initiatives under way, including major asset sales, debt refinancings, share buybacks and fund privatisations, that are “likely to result in a return of capital” from them over the next six months.

Australia’s Financial Review recently reported that one initiative under way to lift MIG’s share price may include the purchase of up to 82 percent of MIG’s shares by Macquarie Group.

Ongoing initiatives include asset sales to pay down the firm’s debt pile, which stood at A$10.7 billion as of 31 March, 2009, according to an operational briefing.

A spokesperson for MIG did not return calls and emails seeking comment.