Macquarie Internetional Infrastructure Fund FY2008 Results

Financial Highlights

MIIF achieved a net income on an adjusted basis of S$115.8 million for the year ended 31 December 2008, up from S$96.2 million in the prior corresponding period. The increase in MIIF’s net income was primarily due to: Distributions from MIIF’s new unlisted businesses: Hua Nan Expressway (HNE) and Taiwan Broadband Communications (TBC) which offset a reduction in distributions from MIIF’s listed investments sold during 2007 and 2008. In addition, net foreign exchange gains of S$6.8 million were recognised in 2008 primarily due to the realisation of MIIF’s distribution hedges.

MIIF’s total operating expenses of S$19.3 million were 45.3 per cent lower than the prior year, driven by lower management fees and reduced interest expenses as a result of lower company-level borrowings.

MIIF’s Net Asset Value (NAV) per share as at 31 December 2008 was S$0.97, compared with S$1.28 as at 31 December 2007 and S$1.12 as at 30 September 2008. The decrease reflects the impact of significant foreign exchange movements (particularly the devaluation in Pound Sterling), weaker asset-level revenue forecasts as a result of the global economic slowdown, lower inflation expectations, and tight credit markets.
Consequently, revaluation losses of S$287.7 million for the year ended 31 December 2008 (2007: gains of S$338.6 million) were reported in MIIF’s statutory accounts.

These unrealised losses do not impact MIIF’s cash flows and its ability to pay dividends in the current period.

All borrowings held by the underlying businesses are non-recourse to MIIF and have substantial remaining terms of between two and 14 years, with the earliest maturing in 2011. Long-term borrowings are well matched to the long-term cash flows generated by these businesses.

The Board declared a final dividend of 3.00 cps for the six months to 31 December 2008, which is in line with previous guidance.

ABOUT MIIF

Macquarie International Infrastructure Fund Limited (MIIF or the Company), a Bermuda-registered mutual fund company, is a leading Asia-listed private owner and operator of infrastructure businesses. MIIF has significant investments in toll roads, ports, communications and broadcast infrastructure, transport infrastructure, renewable energy, and aged-care infrastructure, among others.

MIIF was the first infrastructure fund to list on the main board of the Singapore Exchange Securities Trading Limited (SGX-ST). MIIF listed on the SGX-ST on 27 May 2005 and has over 7,700 investors, including retail investors and some of the world’s foremost institutional investors.

MIIF is an Asian-focused listed infrastructure fund managed by Macquarie Infrastructure Management (Asia) Pty Limited (MIMAL), part of Macquarie Capital Funds which, through special purpose management companies, has approximately A$52 billion (S$52.9 billion) of equity under management as at 31 December 2008.

DIVIDEND POLICY

MIIF's dividend policy is based on the anticipated cash flows from its investments. MIIF intends to pay out as ordinary dividends to shareholders the majority of normal distributions received from MIIF’s investment and not to retain significant cash balances in excess of prudent reserves. Prudent reserves are required to ensure that MIIF remains solvent and that, amongst other things, operating costs such as finance costs, audit fees, registry fees and hedging costs are adequately provided for. Should MIIF receive additional cash receipts from its business which are of a non-recurring nature, as a result of capital management initiatives such as refinancing or asset sales, these proceeds would be distributed by way of a special distribution. MIIF declares and pays regular semi-annual cash dividends on all outstanding shares.

As a Bermudian incorporated company, MIIF is governed by the Bermuda Companies Act 1981. The Bermuda Companies Act 1981 allows companies that are governed by it to declare and pay dividends to shareholders in excess of accounting profits and reserves. Consequently, it is possible that the dividends that MIIF’s Board of Directors (The Board) intends to declare and pay for the period exceeds the total of MIIF’s retained earnings and accounting profits generated for the period. Such situations may arise as a result of unrealised losses that MIIF is required to recognise due to movements in its foreign exchange rates, changes in the value of MIIF’s unlisted securities and other business specific and general economic factors. These unrealised losses do not impact MIIF’s cash flow and its ability to pay dividends in the current period.

TAXATION

As MIIF is incorporated in Bermuda and is not a resident in Singapore for tax purposes, dividends paid by MIIF will be regarded as foreign-source income. The foreign dividend is subject to Singapore corporate income tax when received in Singapore by corporate shareholders. Foreign dividends received by foreign investors with no permanent establishment in Singapore are generally not subject to Singapore income tax. Foreign dividends received by individuals in Singapore (whether resident or otherwise) are exempt from Singapore income tax.

Description of investment income

MIIF has progressively disposed of its entire interest in the listed investments DUET Group (DUET), Macquarie Airports (MAp), Macquarie Communications Infrastructure Group (MCG) and Macquarie Infrastructure Company (MIC) since the second-half of 2007. These divestments were consistent with MIIF’s focus on direct investments and on-going efforts to rebalance its portfolio towards the Asian region. As a result of these disposals, MIIF’s income in 2008 was solely derived from its unlisted investments.

Borrowings

Stand-alone company borrowings decreased from $178.2 million as at 31 December 2007 to $20.0 million as at 31 December 2008. This reduction was primarily due to the repayment of MIIF’s outstanding borrowings from proceeds received from the sale of MAp.

Group short term borrowings includes Miaoli Wind’s consolidated short term borrowings of $5.5 million.

Group long term borrowings have increased to $86.5 million as at 31 December 2008 due to the consolidation of Miaoli Wind’s long term borrowings which are non-recourse to MIIF. Equipment, building, cash and shares of Miaoli Wind were pledged with the lender as collateral for the borrowings of $92.0 million.

NET ASSET VALUE

MIIF uses the discounted cash flow (DCF) approach to value its investments. These valuations reflect the fair value for which infrastructure assets could be exchanged between knowledgeable, willing parties in an orderly arm’s length transaction.

MIIF calculates the fair value of each of its assets at the end of each calendar quarter and adjusts the carrying value of each investment to its fair value. This process generates revaluation gains and losses, which are reported in the Group Income Statement as Net gains/losses on financial assets at fair value through profit or loss.

To ensure that the DCF analysis continues to provide a fair value estimate that can be considered reliable, the valuation model is periodically benchmarked to other sources such as recent market transactions to ensure that the discounted cash flow valuation is providing a reliable measure.

Source: SGX Quarterly Report for the quarter and year ended 31 December 2008