Infratil says capital retention 'optimal', eyeing renewables and retirement investments

Wednesday 11th November 2015

Infrastructure investor Infratil says capital retention is "optimal" at present as it eyes investment opportunities mainly in the renewable energy and retirement home sectors, chief executive Marko Bogoievski told an investors' briefing following the company's release of its first-half results.

The Wellington based company is sitting on cash reserves of $755 million following the recent sale of its remaining 20 percent stake in transport fuels distributor Z Energy for a $392 million gain, and has $1 billion of what describes as "dry powder", including undrawn bank facilities, for planned spending on existing assets and to take advantage of opportunities that might arise.

While Infratil had spent a historically low $55 million in capital expenditure in the first half of the current year, it expected to return to a more normal pattern, projecting capex of between $145 million and $180 million in the second half, with up to $85 million of that on improvements to facilities at Wellington airport and up to $50 million on its majority-owned Trustpower unit, excluding its approximately $127 million takeover bid for King Country Energy.

However, retirement homes and renewable energy, mainly in Australia for the time being, were the company's primary focus, with focus at present on whether some of the assets of Australian based Pacific Hydro would fit Infratil's investment criteria.

With assets in South America as well as Australia, Pacific Hydro was in the midst of a competitive sale process, which Bogoievski said were "a difficult set of assets for the vendor."

"We are particularly interested in the wind and hydro assets in Australia," he said. "It looks like one of those quite challenging businesses that would be difficult for a passive infra (infrastructure) fund to participate in."

That meant it fitted Infratil's desire to target assets requiring hands-on management as it sought to weight its portfolio to assets with higher risk and greater development opportunities.

"It's the sort of thing we might do well in because of our ability to be an active manager," Bogoievski said.

Retirement investment opportunities were "more straightforward", with various greenfield and brownfield opportunities for Metlifecare in New Zealand and RetireAustralia across the Tasman.

"Finally, we are always poised to respond to opportunities," he said, talking up Infratil's track record of being able to structure transactions that might not have been a vendor's initial intention. He cited the RetireAustralia acquisition, saying Infratil had taken over a company that had been on track for a stock exchange listing "before we disrupted it."

A more volatile global economic environment caused by the US Federal Reserve starting to raise interest rates is likely to create opportunities for Infratil.

"Capital retention is optimal" at present, said Bogoievski, with milestones over the 12 to 24 months including Trustpower "putting its foot down on its multi-service offering" of electricity, gas, and telecommunications services, where three out of every four customers coming to the Tauranga-based company is opting for a multiple bundle and achieving high retention rates accordingly.

Also high on the agenda was to execute renewable energy investments in Australia now that the federal Renewable Energy Target has been confirmed after a prolonged period of political uncertainty which had seen Infratil's Australian energy assets see-saw from "very valuable" through "marginal" and back to "valuable", but with pressure on the timetable to build RET projects by 2020.

Infratil would "think about" greater "jurisdictional diversity" for renewables investment than just its current exposures to New Zealand and Australia.

BusinessDesk.co.nz

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