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Infratil's plans for Z proceeds - debt reduction, buyback, Aussie windfarms

Monday 9th September 2013

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Infratil, the New Zealand stock exchange listed infrastructure investor, has paid down its bank debt and is considering buying back shares and ramping up wind farm investment in Australia after reaping about $400 million from the sale of a 30 percent stake in Z Energy.

Infratil has used about half its funds from Z Energy to pay back bank debt and may use the remaining cash to buy back its own shares and accelerate plans for Australian wind farm developments, chief executive Marko Bogoievski said.

"The thing that always looms large is buybacks," Bogoievski told BusinessDesk. "We still believe that there is a discount. One of the best ideas you always have is to buy back your own shares."

The Wellington-based infrastructure investor has been restricted from buying its own shares during the sale of its Z Energy stake. The company has shareholder approval to undertake buybacks and is currently mulling the scale of a potential programme, Bogoievski said.

Infratil shares recently traded at $2.40, a discount to the $2.82 value estimated by analysts in a Bloomberg survey and $2.71 in a Reuters survey. The estimates don't include the most recent figures from analysts, who are under restrictions because of their connection to the Z Energy float.

The company may use some of the Z Energy funds to accelerate wind farm development in Australia.

"We compare the merits of a buyback to investing in another wind farm or buying another asset," Bogoievski said.

Tauranga-based TrustPower, which is 51-percent owned by Infratil, is under way with the second stage of its Snowtown wind farm in South Australia, slated for completion in late 2014. It has acquired four new Australian development sites, with its most advanced projects in Salt Creek and Dundonnell in Victoria.

"TrustPower has a very deep wind development pipeline in Australia," Bogoievski said. "They were thinking about selling down a portion of the completed wind farm operation to a passive investor. Now if Infratil has got more flexibility on capital, it can have a slightly different profile in that development. It might hold an asset for a bit longer or it might bring forward development of other wind farms and bide its time about when is a good time to reduce that exposure."

Similarly, Infratil may use some of the capital to bring forward other projects in its current business, he said.

The company favours investing in early stage infrastructure developments where it doesn't face as much competition from large overseas equity and pension funds, Bogoievski said.

"New Zealand is back on the radar screen internationally," he said. "The good news about that is that there is more activity and more interest from investors - the bad news is there is probably more competition now for certain types of assets.

Infratil can't compete with the lower cost of capital of rivals such as Hong Kong's Cheung Kong Infrastructure Holdings which this year paid $501 million for EnviroWaste.

"Through this phase of heavily contested low cost of capital for these core assets, Infratil has to make a living in a slightly more difficult territory, more complex assets, bigger transition risks, taking on greenfields exposure when it needs to and managing commodity risk," Bogoievski said. "You have to work a bit harder."

The company is investing in irrigation in Canterbury where it is also involved in hydro power generation through TrustPower. Over the longer term this could develop into construction of a 30-kilometre canal to link Lake Coleridge to the Canterbury plains to supply irrigation water to farmers.

Infratil may follow the lead of Morrison & Co. and enter into private public partnerships to develop and manage infrastructure with governments in New Zealand and Australia, Bogoievski said.

"Infratil is in the infrastructure business and it can't ignore the fact that the way these assets are being procured is changing," he said. "There aren't that many infrastructure investors in this part of the world, so we definitely think we are well placed for those sorts of developments."

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