Friday 15 February 2008

Funds take it slow

Sydney Morning Herald
Thursday 14/2/2008 Page: 34

It has suddenly gone very quiet on the infrastructure front. From a near-daily occurrence when the Australian Stock Exchange would receive countless announcements about a toll road or wind farm being bought by one of the offshoots of Macquarie Capital Group or Babcock and Brown, the deal flow has shuddered to a halt.

The best that investors have been treated to in recent days has been yesterday's so-called "news" that B&B Infrastructure (BBI) has secured regulatory approval for its purchase of a 32 per cent stake in a US gas pipeline business. But that deal was announced in early December and since then there has been a buy-out of minority shareholders in a couple of power stations by B&B Power, four wind farms by its wind fund and not much else.

If anything, the likes of other sector leaders such as Macquarie Infrastructure Group and Macquarie Airports have become virtually comatose in comparison with the activity seen last year. The reason for this has been threefold: the credit crisis has made debt-raising much more expensive; many of the funds are still digesting large and expensive acquisitions made last year; and having spent so much, they now have to justify to investors that they have extracted, and can continue to extract, real value from these assets.

In the case of the latter, the short-term appetite for more of these funds appears to have been quenched by Allco Finance's decision to pull its unlisted global infrastructure fund because of investor uncertainty surrounding the latest market turmoil. The picture may look brighter longer term, given the need by governments to offload a variety of crumbling infrastructure that is in dire need of modernization, but don't expect such moves to flow through to our asset-hungry financial engineers any time soon.

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