Australian Infrastructure Fund’s (ASX code AIX) acquisition of another 2.21% of APAC represents the epitome of managers enriching themselves at a cost to shareholders.
The fund, managed by Westpac’s Hastings Funds Management, is adding to the 10.14% it already owns of APAC (the owner of Melbourne and Launceston airports). The problem is that it’s paying an 8% premium to the net asset value currently attributed to APAC on AIX’s balance sheet. If it were paying cash, or gaining a controlling stake, perhaps the move could be justified. But, in order to pay for the deal, it’s issuing stock at a 31% discount to its current asset backing. And that stock is being placed to institutional shareholders, meaning small investors don’t even get to participate.
Existing securityholders are giving up 7.5% of what we already own, or $113m in asset backing, and getting $74m worth of new assets in return (you’ll see this show up in a direct reduction in NTA per security). Hastings, of course, gets another 7.5% added to its annual management fees. No surprise, I guess, but thanks a lot.
The Value Fund has a reasonably small investment in AIX due to the quality of the underlying assets. But this deal just confirms my preference for MAp despite a slightly higher relative price. It’s controlling stakes in airports and internal management team give me a lot more confidence that the value isn’t going to get destroyed.