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Macquarie does nothing as Babcock reviews everything
New Macquarie Group CEO Nicholas Moore pioneered the listed infrastructure fund model with two deals: the 1994 float of Hills Motorway Group housing Sydney’s M2 tollroad and the 1996 float of Infrastructure Trust Australia (now Macquarie Infrastructure Group) after the $4.85 billion purchase of Victoria’s Loy Yang A power station.
Fast forward 13 years and 6 months from the Hills Motorway compliance listing and Macquarie is the world’s biggest owner of infrastructure. There are literally dozens of listed and unlisted infrastructure funds around the world controlled by Macquarie and its various imitators, many of whom are also Australian.
MFS and Allco were the last two impersonators and both are now on their last legs, leaving just Babcock & Brown and, to a lesser extent, Challenger, fighting on in the space.
Shares in most of the funds, along with the Macquarie and Babcock parent companies, have tanked in recent months but Macquarie isn’t taking a backward step.
Indeed, the Millionaire Factory has just elevated Nicholas Moore to be CEO of the whole group and Macquarie Airports chairman Max Moore-Wilton responded with this belligerent spray when I suggested at the recent AGM that the third party listed fund model was dead. MAP shares have since fallen further to a 40% discount to net tangible assets but Moore-Wilton doesn’t see the problem.
Contrast that with Babcock & Brown CEO Phil Green who responded to a similar comment about the broken model at his AGM on Friday by welcoming the suggestion and admitting everything was on the table for review. You won’t hear too many mea culpas quite like that one.
Green later backed off at the post-AGM press conference, according to Stuart Washington’s report in The SMH on Saturday.
One explanation of the different approaches is that Babcock doesn’t have Macquarie’s market and balance sheet strength to withstand the current onslaught.
Whilst the Millionaires Factory was quite happy to let its Macquarie Fortress fund collapse, which it almost did, Babcock rapidly stepped in to privatise Babcock & Brown Environment at 50c a share, half the float price.
And now we have the prospect of Babcock bailing out its power fund, suggesting there is some sort of implied guarantee of support from the parent.
Asked what legal obligations the parent had to bail out Babcock & Brown Power, Green said there was none. Listen carefully to his language.
So why’s he doing it? It’s called reputational damage. Investment banks are capitalised reputation and Babcock simply can’t afford BBP to fall over.
But the market is very unhappy as Babcock & Brown shares tumbled 4% to a 3 year low of $11.97 in morning trade. Macquarie is also off 2% today but it remains 15% above the recent low it hit in March