Derailed by infrastructure

Macquarie Group's decision to devalue the jewels in its flagship satellite trust is likely to create headaches for a range of financial institutions that plunged into infrastructure during the boom years.

While long overdue, the debt laden assets in the Macquarie Infrastructure Group now carry a net asset value of just $5.1 billion, half the value of 18 months ago.

Macquarie's myriad infrastructure assets, held in an array of trusts, drove the group's meteoric profit rise through the new millennium as it raked in huge fees from deal arrangement, funding and  then managing the trusts.

Its success encouraged a host of imitators, most notably the failed Babcock & Brown, where a consortium of bankers owed $4 billion is desperately attempting to offload assets into a heavily oversupplied market.

But there were many others. Most superannuation funds directed large portions of their portfolios into infrastructure, either directly or through specialist listed and unlisted funds.

Other big institutions such as Westpac Banking Corp - which owns infrastructure specialist Hastings with direct investments in airports, seaports, tollroads and power and water utilities - the Commonwealth Bank and AMP all jumped on the infrastructure bandwagon.

Infrastructure assets are valued infrequently, once or twice a year, and the owners so far largely have resisted big write-downs.

Many have argued the monopoly status of the assets and their role as essential services has protected them from the worst of the economic downturn.

That ignores the uncomfortable fact that most of the assets were overvalued when they were purchased, inflated by a Macquarie inspired boom that relied on maximising fees by overpaying for assets.

Macquarie resisted the write-downs when it reported its results a few months back as global stockmarkets plumbed new lows.

With equities bouncing back, and Macquarie increasingly displaying a desire to exit infrastructure and its trusts, it seems the time has come to lower book values more into line with market values.

In the event of a takeover, that would make it easier for an independent expert to rule in favour of a bid.

- © Fairfax NZ News