Macquarie to invest in renewables
https://www.copyright link/markets/...readies-for-1-6b-global-binge-20190828-p52ln0
Macquarie readies for $1.6b global binge
Vesna Poljak and
William McInnes
Aug 28, 2019 — 7.00pm
"We'd endorse that wholeheartedly," chief executive Shemara Wikramanayake said on Wednesday. "We, together with our clients, see a lot of opportunities to keep investing."
"We'll only be deploying it if we see appropriate risk-adjusted returns." Ben Rushton
Instead of doing buybacks and special dividends,
Treasurer Josh Frydenberg on Monday urged Australian boards to "back yourself and use your balance sheet to invest and grow''.
Businesses and fund managers
are firmly of the view it is not the Treasurer's place to tell companies what to do, but prominent venture capitalist Paul Bassat and CSL chairman Brian McNamee supported Mr Frydenberg's intent.
Macquarie was customarily cryptic on what it planned to spend the money on, but it has a track record of delivering high returns in its favour.
Macquarie Group
The investment bank's return on equity (RoE) in 2018-19 was 18 per cent, the highest in at least a decade. Based on its reaffirmed profit guidance for 2019-20, its result will "be slightly down"
on 2018-19's $2.982 billion.
"We'll only be deploying it if we see appropriate risk-adjusted returns for investors," Ms Wikramanayake said. "We invest in development assets and we've been able to get, across the portfolio, very compelling returns."
The investment bank said in a statement it would invest about $1 billion in the current quarter, spanning renewables, technology and infrastructure. Macquarie's raising was struck at $120 a share, according to
The Australian Financial Review's Street Talk column, versus its closing price on Tuesday of $123.51 a share.
Institutional investors will provide $1 billion, and up to $600 million will come from a share purchase plan.
'World-class specialists'
"When they raise capital they usually believe that will be net positive for their RoEs, it may not be immediately, but it will happen within a few years," said fund manager Sean Sequeira, the chief investment officer of
Australian Eagle Asset Management.
"They always have been very focused on improving the RoE, particularly since Nicholas Moore refocused the business coming out of the GFC. They are world-class specialists [in infrastructure] and they started the trend."
Mr Sequeira expected that Macquarie would emerge as world specialists in green infrastructure, "if they're not already". "In the meantime, it also suggests maybe the stock price is fairly valued, but they see the opportunities ahead are more than enough to at least get their current RoEs on this equity raising in time.
"History has shown that's what they've done."
Wilson Asset Management lead portfolio manager Matthew Haupt said the investment bank would have a "very clear sight" on investment opportunities, "so investors can be confident that capital will be deployed, it's not going to be wasted."
The WAM fund manager was confident in renewables as a credible source of growth.
"Around the world, you're seeing the big shift of money to alternatives in this part of the cycle. We use our deep expertise in our area of strength to deliver that," Ms Wikramanayake said.
"Certainly, what investors are having to do is try [to generate returns in a low rate environment]. The way we can deliver that for them is going to areas where we can deliver real expertise. Big investors are wanting that," citing renewable energy as an example.
Global reach
Some of Macquarie's investment will be directed offshore, where it has eyed projects such as a UK offshore wind farm and further investment in a Taiwanese wind farm.
Moody’s Investors Service endorsed the raising as "credit positive". "It will bolster the group’s balance sheet ahead of planned growth. While some capital will be required to meet more stringent capital rules, investment opportunities in the renewable energy, technology and infrastructure sectors could provide strong avenues for profit growth over the medium term."
APRA’s implementation of a new global derivatives rule means an estimated $600 million increase in capital requirements for the commodities and global markets business. The new standardised approach to counterparty credit risk requires an entity to evaluate a counterparty's exposure in distressed conditions.
UBS banking analyst Jon Mott observed a "substantial increase in capital deployment in recent months" in a memo to clients. Of the $1.6 billion, about $900 million is thought to be going to Macquarie Capital.
He also acknowledged that Macquarie's capital position was probably not as strong as indicated. "Further asset recycling is required to enable additional investments without returning to the market," the analyst wrote.
Macquarie was separately
pinged by the prudential regulator in July, because of the structure of intra-company arrangements with respect to Macquarie Bank and its liquidity coverage ratio. The regulator was concerned that funding could be withdrawn in times of financial stress.
In an update to the market on Tuesday, Macquarie confirmed Macquarie Bank was financially sound and maintained a strong liquidity and funding position.
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