Letter from Australia: Private gain as sub-Australian assets change hands | Characteristics
Unless there is a regulatory setback, the buyout is almost certainly now a done deal. Shareholders will meet to approve the transaction in January 2022.
The sale caps a wave of frantic activity leading to the delisting of several Australian infrastructure companies, after what has been described as a momentous year for mergers and acquisitions in Australia’s listed infrastructure sector.
At the time of writing, three deals, valued at nearly A $ 40 billion, were underway.
The Australian equity market now offers just four pure-play infrastructure stocks, up from 15 ten years ago. Those still trading on the Australian Securities Exchange are Auckland Airport, dual listed; APA Group, gas pipeline operator; and two toll motorway companies, Atlas Arteria and Transurban.
Australia’s super funds already own capital airports across the country, either on their own or through their global co-owned fund manager, IFM Investors and other asset managers.
They also own seaports, toll roads, and power generation and transmission assets – and are increasingly turning to telecommunications towers, fiber optics and data centers.
Some assets were acquired under state government privatization programs, but increasingly the hunting ground is the stock market.
The reasons are threefold:
• The size of Australian funds has reached a level that allows them to buy large assets;
• They need assets that can equal future liabilities; and
• They see value in unappreciated listed assets that would not otherwise be available in the private market.
Sarah Shaw, Founder and Chief Investment Officer of Sydney-based boutique asset manager 4D Infrastructure, says: “Listed airports, including Sydney Airport, lost between 35% and 50% of their value when the market shares corrected last year.
“So you can see why unlisted investors with long-term horizons – and liquidity – take the opportunity to sweep away such undervalued listed assets.”
Shaw emphasizes that this valuable opportunity is not limited to the airport industry or Australia. There has been an increase in mergers and acquisitions in the global infrastructure industry over the past year, as unlisted investors and listed operators seek to capitalize on the value disconnect.
She suggests that any proprietary, high-quality, long-lived infrastructure asset that trades at a significant discount to fair value is a target.
Shaw also believes that opening the books of Australian listed infrastructure stocks makes it an easier target, as a buyer doesn’t have to deal with a blocking shareholder or onerous withdrawal rules.
Super funds go it alone
Until recently, large Australian super funds invested through specialist global infrastructure fund managers including IFM Investors, Macquarie Group, Brookfield, Global Infrastructure Partners (GIP) and Morrison & Co. Now super funds have become direct investors and competitors for scarce assets. They took a private take-over approach.
In June of this year, Australia’s $ 150 billion Aware Super, in a 50/50 partnership with Macquarie Infrastructure and Real Assets (MIRA), took Australia’s fourth-largest telecommunications player, Vocus, for 3 , 5 billion Australian dollars.
Mark Hector, senior portfolio manager of Aware Super, says the sector program became the first super fund in Australia to bid for 100% of an ASX-listed company when he made a $ 600 million bid. in Australian dollars for telecommunications provider Opticomm last year.
A bidding war with Unite, an existing investor in Opticomm, ultimately saw the super fund abandon its bid.
Aware Super drew the lessons from the Opticomm exercise to work with MIRA in the context of the takeover of Vocus.
Seven years ago, Aware Super did not own any infrastructure assets. Today, it has over AU $ 11 billion in its portfolio, which represents 8-9% of its total assets under management.
Australia’s largest super fund, the A $ 230 billion AustralianSuper, has been investing directly in large infrastructure assets for the past few years. Australian-Super is part of a consortium that includes QSuper (a public sector fund), IFM Investors and New York-based GIP, which is buying Sydney Airport.
In 2020, she also joined a consortium led by global toll motorway operator Transurban to purchase a 49% stake in West-Connex, a toll motorway network in Sydney, for $ 11.1 billion. Australian. The consortium now owns 100% of WestConnex, valued at around A $ 33 billion.
AustralianSuper plans to increase its infrastructure allocation over the next three years from 3% to 15% of its total assets.
Industry watchers say, cautiously, AustralianSuper’s infrastructure allocation will increase to A $ 50 billion to A $ 60 billion by 2024 – from around A $ 27 billion currently.
Jury on the property
Tim Humphreys, head of global listed infrastructure at Ausbil, an Australian asset manager, says super funds buy long-term predictable cash flow.
“If you’re an actuary in a super fund and you can see your liabilities increase by 5% over the next 30 years, then you’re looking at an infrastructure asset that has a highly certain net return of 7% over the same time period. Said Humphreys. “The infrastructure looks extremely attractive to you from an asset-liability pairing perspective.
“By our calculations, many Australian super funds have infrastructure allocations of around 7%. They are well ahead of similar types of pension funds in Europe, with average allocations below 1%.
But the rate of privatization of listed infrastructure companies worries some.
Humphreys says there is a “broad debate” going on in Australia over ownership – whether it is better to leave these assets in the listed format or whether consumers would get better service with unlisted structures.
“The jury is still out,” he said, pointing out that in the UK water market there is now evidence that publicly traded companies outperform private companies.
Shaw claims that owners of contracted or regulated assets, such as utilities and airports, have restrictions on how much they can charge over service standards etc. Failure to meet these standards has repercussions and could damage their return profiles.
It is important to note that contractual or regulatory obligations that give long-term investors certainty of cash flow also offer protection to consumers.
“The contractual or regulatory structure of the asset remains the same whether it’s in listed or private hands – we’re talking about the exact same assets, but with different owners, and the user experience shouldn’t change,” says -she.
Humphreys says listed assets are constantly monitored by the market, the financial press and regulators. This means greater transparency.
“As long as the regulatory regime is sufficiently secure and robust, there should be no impact on the consumer, but of course, if a company is not listed, the consumer who uses the asset loses the opportunity to invest in it. the asset.
“It’s a loss for the [investing] public when an asset is private.