Transfield prices infrastructure fund at top

The Australian operations and maintenance company raises A$285 million from the spin-off of its infrastructure assets.
Transfield Services priced its offering of shares in a new infrastructure fund at the top of guidance yesterday, raising A$285 million ($235 million) from institutional and retail shareholders in a lightening-speed bookbuild exercise.

ôIt became very clear early in the peace that the deal was going to be oversubscribed by multiples,ö says a source close to the offering. ôInvestors were hoovering up the shares at such a rate. There is going to be a lot of friction over who gets shares and who doesnÆt.ö

At the time of writing yesterday, the allocation to investors was still being determined, though Transfield had previously indicated that existing shareholders in the parent company would be given priority. Transfield Services is listed on the Australian Stock Exchange, and the new fund is a spin-off of its infrastructure assets, which mainly include investments in power stations.

The price of A$2.10 was reached after initial guidance for the offering was increased from A$1.90 to A$2 per share to A$1.90 to A$2.10 per share. At this top price, the fund will yield 8.1% in the 2007/2008 financial year, slightly less than what would have been achieved under the original range.

Sources say investors have been attracted to the yield but also to the quality of the fundÆs assets. ôThere are quite a lot of these infrastructure funds in the Australian market now but the Transfield offering isnÆt as highly structured as some,ö says a source. ôEarnings will be paid out of solid cash flows without a lot of financial engineering required to enhance the yield. I think investors liked the simplicity of the companyÆs finances.ö

The deal was lead managed by UBS and ABN AMRO Rothschild. According to sources, the order book was opened in the early morning Sydney time yesterday and was closed by 12.30pm. Both retail and institutional investors bid into the same book, with CommSec adding some extra weight at the retail broking level. No offer was made to the general public.

Transfield outlined the terms of the IPO a month ago, announcing that it would retain a 49% stake in the fund and manage the assets on behalf of the fund. Consistent with the structure of a stapled security, investors were offered one unit in Transfield Services Infrastructure Trust stapled to a share in each of Transfield Services Infrastructure Limited and TSI International.

The assets in the trust include interests in four power stations, one cogeneration plant and two water filtration plants. One of the more significant assets is a 14% stake in the giant Loy Yang A power station in Victoria which has a capacity of 2,120 megawatts. Last month, in the lead up to the IPO, Transfield increased its stake in Loy Yang A from 10% by buying a further 4.71% from Mitsui & Co for a price of A$64.4 million.

Transfield says the IPO proceeds will go towards paying off bridge loans used to acquire its increased share in Loy Yang A. It will also give it the cash to invest in more infrastructure projects.

In evaluating the IPO, analysts used Babcock & Brown Power (BNB Power) as a comparable. BNB Power is a similar trust that listed in December last year with a market capitalisation at the listing price of A$898 million. It is still the largest listed ôpure playö electricity generation fund on the market and has a portfolio with a total electricity generation capacity of about 2,900MW. The shares listed at A$2.69 and are now trading at A$3.27. It is on track to pay investors a dividend of 12.8 cents per stapled security from the period of allotment to June this year.

On Tuesday, BNB Power told analysts that its Ebitda for the year ended 30 June 2008 is likely to be 10% higher than forecast due to favourable exposure to electricity prices. The fund is currently one of three BNB infrastructure funds bidding with Singapore Power to buy AustraliaÆs largest integrated utility, Alinta, in a deal worth A$7.4 billion.

The Transfield fund IPO was helped along by a buoyant Australian stock market yesterday with the benchmark S&P/ASX200 rising 91.9 points to 6,237.7. TransfieldÆs own shares were up 48 cents to A$13.20 having climbed from A$9.20 in January this year û a gain of 43% in three months.

Shares in the infrastructure trust will start trading on the ASX on June 12.
¬ Haymarket Media Limited. All rights reserved.
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