The spin off, which was announced in June, sets up a new listed entity called Sydney Roads Group (SRG) which will own and operate three toll road concessions with a combined total length of 40 kilometres.
The mature nature of the assets means SRG is likely to become the target of other toll road operators looking for a bolt-on acquisition, suggesting that this is the first real indication that Macquarie is ready to divest of some of its infrastructure assets.
But yesterday Macquarie decided to delay the demerger by a week while it awaits a ruling from the Australian Tax Office.
MIG has asked the tax office to consider a capital gains tax exemption for existing shareholders in MIG who are to receive one SRG share for every three MIG shares via an in-specie distribution. The tax office has been tardy in its response.
ôWe are confident that we have received the right advice from our tax lawyers and that the class action exemption will be granted, but the ATO hasnÆt come back to us yet with a firm answer,ö says a Macquarie equity capital markets insider.
Up until yesterday, the transaction had been running smoothly. The deal will see 88.4% of the shares in SRG held by existing MIG investors and 11.6% held by new investors in a A$125 million IPO.
MIG is said to have assembled a core group of cornerstone investors in the IPO prior to announcing the spin off. It then secured an underwriting commitment from Macquarie Equity Capital Markets and UBS.
ôWe havenÆt been losing any sleep over the transaction,ö says the Macquarie spokesman. ôWhile we havenÆt disclosed how much of the new issue is going to institutions and how much to retail investors, there is certainly plenty of demand from both sides.ö
The new cash will be used for working capital, to service debt and to pay future distributions.
While analysts have questioned the unit price of A$1.15 on SRG, they agree that the separation of more mature assets from other younger and faster-growing assets is likely to improve MIGÆs share price in the long term.
SRG will own and manage three toll roads û the Eastern Distributor, the M4 Motorway and the M5 South-West Motorway û with compound annual growth in traffic volumes of between 3.4% and 6.6%.
SRG will not charge a management fee and will be free from acquisition risk. While the company is not precluded from buying new assets, it needs to get approval from 75% of shareholders before doing so.
The stock will also pay a handsome distribution û an estimated 6.4% in 2007 and 7.1% in 2008, compared to the 6% paid by MIG.
The profile of the new company makes it a likely takeover target for other infrastructure operators such as Transurban which runs Westlink M7 and the M2 Hills Motorway in Sydney, CityLink in Melbourne and the Pocahontas Parkway in the US state of Virginia.
While the ultimate sale of SRG hasnÆt been a stated objective of Macquarie Bank, the potential is there.
Meanwhile Macquarie expects some of the large pension funds to sell out of SRG soon after the August 7 listing.
ôThis vehicle is a lot smaller, so by virtue of their mandates, some institutional investors will probably be required to sell their shares,ö says the Macquarie spokesman. ôBut with its higher yield we expect other investors to become a natural holder of the shares.ö
Following the demerger, MIG will retain interests in 10 toll roads, nearly all of these in offshore markets. 92% of its investments will be in ramp-up assets.