Its been repeated often enough in the financial media in the last few months that the Macquarie model is dead. While I won’t argue with that I don’t necessarily think that all listed infrastructure should be put in front of the firing squad just yet.
My point is this there’s a big difference between borrowing to build new quality infrastructure as compared to using excessive leverage to buy existing income producing infrastructure at inflated prices.
One of the (many) criticisms that’s been levelled at BCS is its high gearing. As long as their financiers don’t run into any trouble then I don’t necessarily see this as a problem. Whether a new venture borrows 10%, 50% or 90% does it really matter? So long as:
a) the terms of the finance are reasonable and fit in with the timeframe of the project; and
b) the projects can be delivered without major blowouts; and
c) the completed infrastructure proves to be as valuable as planned.
If these things are met than the investors ultimately stand to make a good return on their money.
However, I agree the model of coming along after such a project has been completed, buying it for far in excess of its cost of construction, wrapping it up in a listed fund with a 25 year management agreement and paying distributions out of capital, definitely looks like “a dead parrot!”
http://www.businessday.com.au/business/macquaries-deadparrot-model-20080731-3nwt.html
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