Old MIG = Good MIG + Bad MIG + 10в Is it a Good Deal for the by lindahy


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									Macquarie Infrastructure Group                                        MIG                                                      7 January 2010
Old MIG = Good MIG + Bad MIG + 10¢                             Is it a Good Deal for the Investors? Yes!
Recommendation:                  Hold, the Restructure is a positive move to repackage attractively
From the Jumble Sale to the Showrooms (at least for Good MIG!)                           Snapshot
The Independent Directors of MIG unanimously recommend that MIG security holders         Last Price                 $1.435
approve the Restructure Proposal. Independent Expert, Ernst & Young, considers that      Market Cap.                $3,246 million
the Proposal is in the best interests of MIG security holders. General Meetings of MIG
                                                                                         52 Week High               $1.77
security holders to consider the Restructure Proposal will be held in Sydney on 22
                                                                                         52 Week Low                $0.95
January 2010. Security holders will have received an Explanatory Memorandum.
                                                                                         Sector                     Transport Infrastructure
Deferred trading should commence in Intoll and MQA on 25 January 2010; Record
                                                                                         Price Chart
Date 1 February; and Implementation Date 2 February; Normal Trading 9 February.
The Restructure, if approved, will result in security holders holding securities in:
Intoll - a standalone group with its own management team holding MIG’s interests in
the 407 ETR (30%) and Westlink M7 (25%) and comprising the existing MIG stapled           1.60

entities (‘Good MIG’). These high quality assets have stable financing and cash flows.
Investors receive one Intoll security for every MIG Security held on the record date.     1.40
Macquarie Atlas Roads (MQA) - a Macquarie managed group (‘Bad MIG’) holding
the other MIG assets (M6 Toll, APRR, Chicago Skyway, Indiana Toll Road, South Bay
Expressway, Dulles Greenway, Warnow Tunnel and Transtoll), comprising Macquarie
Atlas Roads Ltd (Australia) and Macquarie Atlas Roads International Ltd (Bermuda).
These assets require substantial operational and financial management to maximise         1.00
value to security holders. On implementation of the Restructure Proposal, security           Jan-09        Apr-09     Jul-09       Oct-09

holders will receive one MQA security for every five MIG Securities held on the          Business Description
record date (expected to be 1 February 2010) by way of an in-specie distribution.        Macquarie Infrastructure Group (MIG) is one of the
Leaving adequate working capital for Intoll and MQA the MIG Boards propose a             largest developers and owners of toll roads in the
Special Distribution of 10 cents per MIG security (as well as the interim 2¢, now ex).   world. MIG's portfolio comprises 10 toll roads
Macquarie will get ~$104m for assistance & compensation to forgo Intoll management.      across seven countries. MIG is a stapled security.
Ernst & Young notes (p.227 of the 331 page Proposal) that as at 1 December 2009 the      Macquarie is the Responsible Entity of the trusts.
                                                                                         See the website www.macquarie.com/mig
MIG price of $1.31 is at a discount of about 49% to net assets as at 30 June 2009.
                                                                                         Analyst: Peter Russell

Intoll – ‘Good MIG’                                                  Macquarie Atlas Roads (MQA) – ‘Bad MIG’
As at 30 June 2009, the 30% investment in the 407 ETR was            Net Asset Backing $1,686m as at 30 June 2009. Investments: M6
valued at $3,284m. With proportionate net debt of $1,324m its        Toll, 100%; APRR, 20%; Chicago Skyway, 22.5%; Indiana Toll
enterprise value was $4,608m and gearing 28.7%. The concession       Road, 25%; South Bay Expressway, 50%; Dulles Greenway, 50%;
runs to 2098. Partners are Cintra 53% and Lavelin 17%.               Warnow Tunnel, 70%; Transtoll 100%. The key holdings are
The investment in the Westlink M7 was valued at $359m. With          valued as at 30 June 2009, on discount rates of 12.5% to 14%, as:
proportionate net debt of $297m its enterprise value was $656m       Tollroad         Ownership       Value % portfolio
and gearing 45.3%. The concession runs to 2037. MIG holds a 25%      M6 Toll            100%          $412m 28.4%
effective interest via a 50% interest in Western Sydney Roads        Dulles Greenway 50%              $343m 23.7%
                                                                     Chicago Skyway     22.5%         $148m 10.2%
Group (p.187). Queensland Investment Corporation holds the other
                                                                     APRR               20.37%        $448m 30.9%
50% of WSRG. The other 50% of Westlink is held by Transurban.        Indiana Toll Road 25%             $98m    6.6%
The two Intoll investments at valuation total $3,643m (p.108 of      Other Investments                  $1m   negligible.
Proposal) and with $68m of non-investment balances Intoll has net    Investments total $1,450m, + other net assets $237m, a total $1,686m.
assets assessed at $3,711m or $1.64 per share (30 June ‘09).         Concessions of five key roads run to 2032 - 2104, average 46 yrs.
           DCF rate portfolio% FY09 Rev. EBITDA Debt/EBITDA          They have net debt of $8650m, making enterprise value $10,097m,
407 ETR         9.5% 90.1%          $191m       $144m        9.2x    85.7% geared. On combined FY09 figures of $992m revenues and
                                                                     $656m EBITDA, net debt is 13.2x EBITDA (p.89).
Westlink M7 12.0% 9.9%               $41m         $33m       9.0x
                                                                     As at 11 December 2009, Macquarie had a total relevant interest in
The 407 ETR is a 108 km multi-lane all-electronic toll highway in    approximately 17.6% of MIG Securities.
Toronto, Canada along some of the fastest growing areas. 407 ETR
follows one of the busiest routes in North America. (p.186).         Ordinary dividends are not expected in the near to medium term.
                                                                     Cash flows from any sale of assets may be returned to investors or
Westlink M7 is a 40 kilometre toll road west of Sydney, Australia,   reinvested. Strategy will be to grow the value of the portfolio.
linking the M2, M4 and M5 as an orbital network, linking major       Priorities include active management of project operations, efficient
employment, industrial and residential areas of western Sydney.      capital management, refinancing project debt as opportune.
The proposed restructuring will transform a snaky mess of tollroads into two assets. The key portfolio will house tollroads in
Toronto and Sydney, performing well and also attractive to potential purchasers. The unattractive roads will continue to be managed by
Macquarie and may one day be resurrected. The 10¢ distribution adds value to the enhanced package.

                Page 1 - Intersuisse - Thursday 7 January 2010 - (See Page 3 for Disclaimer and Disclosures)
Macquarie Infrastructure Group                                           MIG                                            7 January 2010

Good MIG, Intoll, has two well performing roads with growing earnings and upside in acquisition prospects
Toronto’s 407 ETR will represent some 90% of Intoll’s portfolio. The tollroad is reasonably mature but is a critical route in North America. It
was well designed with provision for growth and has seen a succession of upgrades and widenings as traffic builds. The tolls can be
raised and this week an 8% increase was announced on certain sections. For fees, past and current expansions, see www.407etr.com.
Sydney’s Westlink M7 runs through western Sydney, an area of most rapid residential and commercial growth, fuelled by the tollroad as
part of Sydney’s orbital network. The M7 is still at an early stage of traffic expansion and its prospects are proven.
Intoll will have a distribution policy that aligns the distributions to the cash generated by its portfolio.
Good MIG’s two assets, freed from the rest of MIG’s complex portfolio, just might appeal to the Canadians bidding for Transurban.
Canada Pension Plan Investment Board (“CPPIB”) and Ontario Teachers’ Pension Plan (“OTPP”) are not only Canadian based long-term
investors for which the 407 ETR appears a very appropriate investment. They also submitted in late 2009 an indicative proposal to
acquire 100% of Transurban (TCL) securities by way of a scheme of arrangement. Discussions with TCL continue and if a deal
eventuates it would not seem unlikely that the Canadians would in due course talk with QIC and Intoll to acquire WSRG and move from a
50% to a 100% interest in the M7. What could interest the Canadians could appeal to other long-term investors in infrastructure assets.

Bad MIG is much harder, but Macquarie will be motivated to use its skills to one day resurrect its value
We do not expect early interest for the acquisition of Macquarie Atlas Roads. It remains complex and there are many infrastructure assets
globally that will attract investors before this as the GFC gradually falls behind us. However, Macquarie knows it well and has the skills.
MQA base fees will be 2.0% if its market value is under $1bn, 1.0% if market value is over $3.0bn and 1.25% in between. Performance
fees (p.74) will be 15% of the $ outperformance of the MQA accumulation index (including distributions) over that of the S&P/ASX 300
Accumulation Index, starting from the first listed 30-day VWAP with any underperformance first to be made up before each fee payment.
These will be made in three equal annual instalments with each second and third payable only if outperformance continues. MIG has a
current underperformance deficit of $2.12 per security, approx $4.8bn in total, which would shield future payments – but this will not be
carried forward, giving Macquarie enhanced incentive but securityholders greater fee exposure.

The Restructure is intended to provide benefits:
    Separation to two ASX listed groups with more easily identifiable risk return profiles;
    Potential to improve the combined market value of Intoll and MQA by mitigating the negative sentiment and impact of the assets
          needing active management from the more stable assets;
    Creation of the separate groups with distinct character may attract new strategic and general investors;
    Reduction in management costs for Intoll and MQA, drawing on existing MIG team members;
    Intoll, with greater focus on two roads only, may be more likely to be the subject of a takeover.

However, there also may be negatives:
   Costs of the Restructure - payments to Macquarie, costs of financial, legal and accounting advice;
   There is no certainty that the Restructure will improve the market value of Intoll and MQA;
   The ATO may not grant a Class Ruling for demerger relief, with adverse tax impact on MIG Securityholders;
        For tax considerations, refer to the advice letter from Greenwoods & Freehills (p.128 to p.134);
   The Restructure Proposal may not proceed if certain conditions are not satisfied;
   Removal of Macquarie branding for Intoll may adversely impact its business;
   Intoll will lose MIG’s priority over Macquarie’s future toll road opportunities;
   The current MIG performance fee deficit will not carry forward to MQA so future fees may be higher than otherwise; and
   Additional corporate costs will be incurred because Intoll and MQA are separately listed.
        For guidance, MIG shows (p.61) the management costs for FY09 as Actual $48.2m, Intoll Estimate $14.1m, MQA estimate
        $22.8m, combined estimates $36.9m.

Possible Security Values and Recommendation
Given market value in December was around half of assessed net asset value, payment of the 10¢ distribution converts ‘20¢ of smoke’
into cash. The 2¢ distribution with ex-date 23 December 2009, payable 12 February, and the costs associated with the restructure,
approximately 3.77¢, also convert ‘smoke’ to cash. This realisation of assets into hard cash, with realisation of potential upside from the
assets becoming more tradeable, has underpinned the share price rise of some 10¢ (today up to 14¢) since the Restructure was
announced on the 30 October 2009 AGM. We calculate that at $1.435 (ex the 2¢ dividend) the market price is 56.9% of net assets as at
30 June 2009. On this basis, the notional value of the parts after the split are:
                    Good MIG (one Intoll security)                 93.3¢
                    Bad MIG ( one fifth of an MQA security)        42.4¢
                    Total notional security value                135.7¢             + 10¢ distribution          $145.7¢.
We expect Good MIG to rise above this, to above $1.00, and Bad MIG to slide, say below 35¢ per MIG (a security price of $1.75 per MQA).
For most clients, it would seem appropriate to support the Restructure Proposal and continue to Hold, probably looking for an early
opportunity to dispose of the MQA securities while keeping the Intoll securities for the medium term, depending on personal investment
objectives and criteria.

                 Page 2 - Intersuisse - Thursday 7 January 2010 - (See Page 3 for Disclaimer and Disclosures)
Macquarie Infrastructure Group                                             MIG                                              7 January 2010

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Prepared by Peter Russell

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