Australia | Aug 17 2006
By Chris Shaw
High levels of volatility in the market such as currently the case can unnerve investors, pushing them towards investments that offer a greater level of security. While in the past this meant buying bonds or parking money into cash management accounts until conditions improved, the emergence of infrastructure plays with solid yields has provided a new option for more risk-averse investors.
Mariner Financial is in the process of putting together a new addition to the infrastructure sector, with the soon to be listed Mariner Pipeline Income Fund. The fund offers an investment in pipeline infrastructure, as it owns the Moomba-to-Sydney Ethane Gas Pipeline that allows ethane gas to be supplied to Qenos, which runs a plant at Botany in Sydney.
Qenos, ex-Kemcor Australia, was previously a joint venture by Exxon Mobil and Orica (ORI) and is currently fully owned by China National Chemical Corporation, itself owned by the Chinese government. Qenos is the sole domestic producer of polyethylene plastics.
The pipeline has an estimated technical life of 60 years (it was built ten years ago) but the current reserves derived from the Cooper Basin are expected to only last until 2025. The PNG to Queensland pipeline could potentially double its reserves, although the future of this option is very much up in the air at the moment since Australia Gas Light (AGL) publicly pulled the plug on its involvement in the $4bn project this week.
The attraction of the fund is its yield, which has been pitched at 10.8% for FY07 and FY08, with about 75% of the income to be tax-deferred. This is a solid premium to the average yield in the infrastructure sector according to Aegis Research, which recommends the issue. As does Lonsec.
Additionally, the fund has a low level of gearing, estimated at about 10%. This is significant according to Aegis, as it means a refinancing via adding debt to the balance sheet could result in a boost to payouts in future years.
Lonsec Infrastructure Research likes the yield and long-term contracts in place, as well as the lack of local competition. It also notes there is potential to reasonably cheaply expand capacity, which does provide some growth potential in future years. It too is somewhat concerned by the single customer model, but suggests if supply can be assured the units would have a valuation of $2.05, which compares to the $2.00 issue price. (In the absence of the PNG pipeline, this would have to be done through other discoveries in the Cooper Basin or elsewhere).
Mariner paid $97m for the assets earlier this year and one of the negatives is certainly it trying to do “a Macquarie” by building in a whole rack of fees, including an annual fee of 0.76%. Aegis acknowledges this may impact the market’s perception post listing, and thus weigh on the price. We would add the same goes for the PNG pipeline plans. If binned this would increase the pipeline’s risk profile, even though a non-renewal in 2010 of the current supply contract is regarded as relatively low by both Lonsec and Aegis.
Lonsec seems to agree this appears a little high given the low growth potential of the trust. But as Aegis points out, the pipeline is expected to run until at least 2025, which is a long-time to be receiving a yield premium to the market, the yield looking secure thanks to the long-term contracts in place. (For the time being, however, the yield is only “guaranteed” for the first two years).
The Mariner Pipeline Income Fund is attempting to raise $137m from the issue of 68.5m stapled securities at an issue price of $2.00.
Minimum investment is set at $2000. The offer opened on 10 August 2006 and closes on 1 September 2006.