Macquarie - Gets Hammered!, page-4

  1. 2,061 Posts.
    Cerhob, how interesting. You ask me if I was burned by MacPac not really other than following some of their wicked advice on an occasion or two.
    But brother, wonder what they did to Crikey.com.au?
    Must be their ex-bankers....READ ON BRO, and thanks for the tip:

    How good a buy was Sydney Airport?

    by Stephen Mayne
    Originator of the term "millionaire factory"


    Market darling Macquarie bank's purchase of the Sydney airports is the latest in a string of worrying deals as far as we here at Crikey are concerned.

    --------------------------------------------------------------------------------

    The jury in the court of public opinion is still out as far as the Macquarie Bank syndicate's purchase of Sydney Airport is concerned.
    But we here at Crikey like to lead public opinion and put the head on the chopping block early.

    We called it a dud and stick by the assessment. Here's what we've had to say in our subscriber updates on the airport deal and various other Macquarie investments which aren't travelling all that well.

    Sealed section 25 June 2002:

    "1. SYDNEY AIRPORT SALE BONANZA

    You would hope that Macquarie Bank would have learnt their lesson after putting together the syndicate that paid $4.75 billion for Victoria's Loy Yang A power station, which at the time was hailed as the biggest government trade sale in Australian history.

    Macquarie collected about $30 million in fees but have seen their Loy Yang equity investment plunge because their syndicate paid at least $1 billion too much.

    Earlier this year, Macquarie went over the top by paying $850 million for NTL's Australian business so they could package it up in a new listed fund.

    And now they've stumped up a ridiculous $5.6 billion for Sydney Airport in the hope they can cream more than $30 million a year in fees out of their new airport fund and emulate the rivers of gold that flow from their world's biggest tollroad fund, Macquarie Infrastructure Group.

    Macquarie's Sydney airport assumptions are ridiculously bullish, but the government have boosted the price by almost doubling aeronautical charges, not regulating future price rises and banning any rival airport development within 100 kilometres.

    Macquarie are going to have to work their monopoly super hard to make it pay but they are dreaming of almost doubling revenues in the next few years.

    Now that everyone has worked out the tollroad lurk, the game is up for Macquarie and they have to pay ridiculous prices to get seed assets for their funds.

    Ironically, they have more than tripled their money on the tollroad that leads to Sydney Airport - the Eastern Distributor. And the giant German construction outfit Hochtief/Leighton are Macquarie's partner in the airport and the tollroad, but they thankfully pulled out of the Loy Yang consortium at the death.

    Crikey has already paid for his ticket to Sydney for the Macquarie AGM in late July but we'll need several hours to get through all the issues thrown up by the millionaire factory."

    We followed that spray up with the following in our sealed section of 28 June 2002:

    "3. SYDNEY AIRPORT FEE FRENZY

    Can you believe that the total fees ripped out by everyone in the Southern Cross Sydney Airport consortium is an incredible $175 million? This has surely got to be some sort of record. Macquarie pockets $50 million and the rest is spread around all the other bankers, advisers and investors.

    Is it any wonder that shares in the recently floated Macquarie Airports Group have plunged 12c to 77c this week after floating at $1 just a few months ago. They paid $640 million more than their nearest rival and then loaded another $175 million in fees on top of the $5.6 billion they paid."

    Macquarie's hopelessly conflicted property deal

    But Macquarie aren't all tollroads and airports, they also have interests in property as well which provide them with nice little fee earners as well, as we pointed out in our sealed section of 13 May 2002:

    "13. MACQUARIE BANK'S RENTAL DEAL

    Crikey has written before about millionaire factory Macquarie Bank and the extent to which they take enormous fees out of the infrastructure trusts set up to finance toll roads.

    Well, did you notice last week that the 24-storey Sydney office building, No 1 Martin Place, was sold by Grocon to the Macquarie Office Trust (MOT) and another Macquarie Trust for $426.25 million?

    MOT is a listed office trust.

    Who is the major tenant of No 1 Martin Place? None other than Macquarie Bank itself.

    So in future, the fund manager at Macquarie Office Trust will need to negotiate the rent and fit-out and refurbishings and maintenance that Macquarie Bank pays.

    How do you avoid that conflict of interest?"

    Lights, camera, inaction?

    Now Macquarie is stretching its enormous fee-earning tentacles into the world of film as we reported back in May (but perhaps in not as gushing terms as Media Watch accused Channel 9 of doing).

    Our anonymous contributor wrote:

    "16. MACQUARIE GETS INTO BED WITH PACKER AGAIN

    Last Monday night, Macquarie and The Nine Network held a function in Crown Casino's River Room to launch their float to raise $62.5 million for a slate of film and television production.

    You have to wonder why bother 'launching' at all in Melbourne, when the prospectus has been out for about six weeks, preceded by a huge bash at Fox Studios in Sydney for all comers. Unless of course they're worried they might be under-subscribed - and given the calibre of most of that slate, well they might be.

    Hoyts are also in with Nine and Macquarie, but where were the Hoyts boys on Monday?

    Where were the potential investors?

    It was a decidedly low-key affair up there in the River Room, and discounting the few filmmakers invited, various Macquarie staff, two or three naff Nine-type celebs, Lillian Frank, I reckon there were about two moneybags in the room.

    Talking of naff Nine types, star of the show was our Eddie, who gave a tragic speech from the podium about Aussie films to the world, before telling everyone to get home quick or else they'd miss Millyanaire.

    Charles Wheeler from Macquarie is a nice bloke, but no public speaker, and after saying he was going to be brief, he bored everyone for about 20 minutes and spent the rest of what was left of the evening chatting up Jennifer Keyte.

    It was all very dull and pointless, and judging by some of the looks exchanged between some of the senior Macquaries, wouldn't be surprised if blame will be swiftly and roundly apportioned and maybe a head or two will roll."

    Telecom woes

    In our sealed section of 3 June 2002 we reported on Macquarie's purchase of troubled telecom, NTL:

    "19. MACQUARIE OVERPAYS FOR NTL

    A merchant banker writes:

    Dear Crikey,

    "Abacus's" piece on Macquarie Infrastructure Group (MIG) accounting was interesting. If a persistent rumour circulating the market is true, it seems an error in the calculation of the discount rate when valuing NTL is a major factor in Macquarie making an $850 million offer which was so much higher than anyone else.

    Eager for a quality asset to seed their upcoming Communications Fund, apparently they worked around the clock to model the business, derive a valuation and slap-down a cheque before any other bidders did.

    Surely it can't be true, but then again nobody else since has been able to reconcile the amount they paid. We know what they say about haste..."

    Macquarie's troubled investment funds

    And finally, let's take a look at some of Macquarie Bank's more troubled investments.

    This really is a roll call of broken promises and unfulfilled projections.

    1. The Macquarie Apollo Trust

    Apollo is Macquarie Bank's hedge fund. It is a "fund of funds", which means Macquarie manages investments in other funds on behalf of Apollo investors.

    When it was launched in mid 2001, it quoted "simulated performance" from historical returns by funds that Macquarie would use for Apollo.

    From 1996 to 2000, the relatively constant per annum average return was 15.2%.

    Investors placed $118 million into Apollo, with much of it borrowed from Macquarie with handsome fees and margins thrown in, on top of the fees for managing Apollo.

    The most recently available results to investors for the nine months to 31 March 2002 show a year to date return of negative 0.1%. The comparable index return was 4.42%.

    So much for the "simulated" 15.2%.

    2. The Macquarie Aircraft Notes (Mac Notes)

    In June 1999, Macquarie launched a Trust to finance the purchase of Saab aircraft for (wait for it) Hazelton Airlines.

    With the collapse of Ansett, Hazelton was placed into liquidation.

    Initially, Macquarie negotiated with the administrators to defer 50% of the rental due. Then, Macquarie was advised that the airline would cease trading if further revised terms could not be agreed, and deferred 75% of the income.

    Investors have been advised that even if the sale of Hazelton to Australia-Wide goes ahead, net proceeds from the Notes will be cut significantly, as lower rental returns will be offered to the purchasers of Hazelton. Investors were required to make another net contribution in the 2001/2002 financial year.

    3. Macquarie Private Equity Trust I

    Macquarie opened its private equity funds to retail investors in May 1999. To quote Macquarie's own website, "Private equity is simply the purchase of equity in a company that's not listed on a stock exchange".

    Macquarie claims that their private equity trusts enable investors to buy into companies "before the rest of the market has access to them".

    Macquarie raised over $207 million, including $85 million from retail, but only $100 million has been invested.

    Evidence that it is struggling to find worthwhile investments is the fact that it is now investing in listed companies. This is totally outside its mandate for finding undiscovered private companies and nurturing them on to the market.

    A classic example is SMS Management, the old Sausage Software, in which the Private Equity Trust is now a major shareholder. This is a listed company which anyone can buy into without having to pay Macquarie's high private equity fees.

    So much for offering a different asset class which private investors cannot normally find.

    To make matters worse, Macquarie has now launched its Private Equity Trust II, bringing in more fee income before the first fund is fully invested.

    Where will the next good deal be placed?

    4. Macquarie Global Infrastructure Trust (GIFT)

    If there is one business Macquarie Bank should know, it is infrastructure. How it decides which of its vast number of deals goes into which Fund, only Macquarie knows. GIFT raised $263 million, including $70 retail.

    It is difficult to know how GIFT is performing overall, as revaluations are not regularly available, but a June 2002 letter advised:

    "Detroit-Windsor Tunnel: Traffic flows, significantly down immediately following the terrorist attacks, have steadily improved and are now generally 15-20% below the same period last year. The forecasts have been revised downwards and have been a major cause in the decrease in the value on the investment from $37.6 million to $28.3 million. This represents a 19% decrease on the original acquisition price."

    Other assets of the Trust include Reef Networks, whose sole client is SingTel (previously Optus), and NextGen Networks, a cross Nullabor network. Hardly in the same class as the M2 motorway.

    5. Mac IT 2000 Trust

    Macquarie manages one of Australia's largest computer equipment and leasing businesses. It is run through the Mac IT 2000 Trust.

    This Trust appears to be performing reasonably, but in June 2002, investors were advised that additional net cash requirements from investors for 2001/2002 would be higher than forecast due to a lower than expected net profit.

    6. Macquarie Managed Investments, Australian Share Funds

    Despite Macquarie's reputation as a fund manager, it has failed to establish any track record or decent fund growth in the biggest sector of the Australian market, the broad Australian equity market.

    While fund managers such as Perpetual, Platinum, MLC and Colonial First State have all generated long term performance of over 10% per annum, and inflows of billions of dollars a year, Macquarie Bank's two major Australian equity funds are:

    * Australian Share Fund. Balance $31 million, launched 1994, 5 year performance 4.63%.
    * Imputation Fund. Balance $24 million, launched 1998, 3 year performance 5.37%.

    Heaven help performance when we are not in a bull market. The total amount which Macquarie Bank has generated into these funds over many years is less than the weekly inflow into the funds of successful managers.

    Macquarie is simply not on the radar as an Australian equity fund manager.


 
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