More red ink from Macquarie Group’s listed funds with another half a billion or more in losses revealed by ConnectEast.
Last week we saw a string of losses from associated trusts and listed groups in infrastructure and in property. Yesterday we saw another flop from a Melbourne-based, the ConnectEast Group which has contributed more red ink to the mounting total of Macquarie’s flops list.
Macquarie managed ConnectEast (its major asset is the EastLink toll road) reported a net loss for 2009 of $531.58 million.
Last week we saw reports and losses from Macquarie Infrastructure ($1.7 billion), Macquarie CountryWide ($1.4 billion), Macquarie Office, ($1.37 billion), the Macquarie DDR Trust ($616 million), Macquarie Airports ($299 million), Macquarie Media ($84 million).
That was around $5.5 billion, now the total is just over $6 billion with the ConnectEast losses.
For the securityholders it’s a terrible story, made worse by cuts to distributions because of the collapse in earnings, the need to restructure debt and raise fresh capital, and the replacement of the borrow and leverage up model and pay everything, with a far more conservative and traditional model of paying for everything out of earnings.
But Macquarie isn’t alone; later today Mirvac will reveal a bad result (and lots of fluff about how things are looking better).
The likes of GPT and Valad will also report similar stories.
ConnectEast is merely the latest reporting infrastructure or property group to go down this route.
It’s also sticking to the script in holding out its hand for more money.
It suspended trading in its securities yesterday while it raises up to $421 million.
As well, distribution to security holders has been lowered by around 80% for the final payment, a sign of the uncertainty the board has about the outlook and the business model.
ConnectEast owns and operates Melbourne’s 39km EastLink tollway which connects the eastern and southeastern suburbs of Melbourne.
While it opened in June of last year, the road, like so many other infrastructure assets, has failed to perform according to the underpinnings and forecasts in its financing documents.
The Lane Cove and Cross City Tunnels in Sydney are two other projects that come to mind where the same has happened.
So it’s no wonder the latest result included a write-down on the EastLink toll road concession in Melbourne of $400 million – to about $2.9 billion – after an independent review of traffic.
The review, released last week, revealed a major shortfall between observed volumes and revenues and projections made in 2004.
ConnectEast managing director John Gardiner said steady traffic and revenue growth had established a solid foundation for the business as traffic "ramp-up" continued.
"ConnectEast is actively working to grow traffic and revenue on EastLink through a range of measures such as marketing and the installation of 49 new directional signs pointing to EastLink on Stud Road, Springvale Road and the Nepean Highway," Mr Gardiner said.
Mr Gardiner said the group was also focusing on streamlining its corporate structure and business processes to reduce operating costs.
Earnings before interest, tax, depreciation and amortisation – before repairs and maintenance – for the 2008-09 financial year was $77 million.
Tolling and fee income was $141 million.
The group declared a final distribution of one cent per unit for the six months to September 30, 2009, compared to 5.25 cents in the prior corresponding period.
ConnectEast said that subject to its financial position, the group intends to pay a distribution of one cent per unit for the six months ending March 31, 2010 and after then ConnectEast intends to align distributions with operating cashflow.
That could very well see distributions compressed for the next year or two while patronage on the tollroad improves.
The $421 million capital raising will be done via a one-for-two pro rata entitlement offer, at 33 cents per unit, with a $324 million institutional component and a $97 million retail component.
That’s a discount of around 15% to the last sale of 39 cents.
The group said net proceeds from the raising, together with $624 million existing cash balances, would enable full repayment of debt maturing in November 2010.
The equity raising would create a more robust and sustainable capital structure, reduce net interest costs, eliminate refinancing risk in 2010, reduce net debt to $1.056 billion and reduce gearing from 46% to 35%.
