Article by Deep Value Investments Blog ~ by Rob Mahan @DeepValueInv
Just put a very small position (1.4% portfolio) in Infrastructure India Fund at 3p.
It has come up on my screens a few times but is now too cheap to ignore. This is highly risky stuff but has very good upside – if it all plays out. I can see a multiple of the current share price in a year or two.
This is breaking one of my investment rules – it is 75.40% owned by GGIC IIP Holdings limited. Something I usually avoid – they are Guggenheim Investment Partners – a very large US asset manager. As far as I have been able to find there are no minority shareholder protections in place. Guggenheim can delist the company at will – as they own over 75%. Odd thing about this is that it was sold at IPO with assets from Guggenheim, then bought more from Guggenheim with a placement taking their stake back up to the current 75%.
Guggenheim also control company debt that needs refinancing – albeit only a small amount of debt. $25m vs a NAV of $237m. This again provides a back-door route to seizing the 25% of the company they don’t own.
I actually don’t think this will happen – as an asset management company Guggenheim need outside capital – it won’t do to simply steal from minorities, particularly for at most $70m. They could simply offer $50m – double the current share price, buy out the minorities and do it nicely. Guggenheim partners have $290bn AUM so this is small change to them and not worth the reputational hit. Institutional investors like them like to rob you slowly – via excessive fees mostly….
I have googled intensively and found no instances where Guggenheim have screwed over minorities before – I am not ruling it out. They have received a lot of bad press of late – something I think means being screwed here is much less likely.
https://www.ft.com/content/bfe346d2-be73-11e7-9836-b25f8adaa111
Being just one example…
Performance has been terrible – NAV has fallen from £373m in 2015 to £282m now.
Fees are excessive – £5m a year plus shares to manage a series of companies that should be able to manage themselved – this is c1.8% of the NAV. Management are former Guggenheim partners – parachuted in here. There is lots not to like here.
The assets are pretty very hard to analyse. As a plus when they sold a toll road in 2016 it was only at a 16% discount to NAV. Auditors are KPMG – provides some reassurance…
Assets are as follows:
SMH – 400MW Hydropower – 31% stake – NAV £10m – My value £0 but option value.
This has £343m debt and is incomplete, miracles can happen and this might not be worthless – but my strong bet is that this is worth 0.
IEL – 41MW Wind – 100% stake – Nav £10.6m – My value £10.6m
Project has £11m debt. I would be willing to bet this could be sold reasonably easily – but it doesnt make a dent in running costs so largely immaterial.
IHDC – 62MW Hydro + 30MW under construction – 50% stake Nav £29m – My value £29m
Project has £8.9m debt, again I would imagine this is easy to sell, slightly more material.
DLI – 37.4% valuation £246.4, project debt £85.7. Container / transport/ shipping. Valuation comes from NPV calculation. Apparently the terminals are ‘close’ to completion but need more investment. Disclosure is poor as to exactly how much or when they will be completed / what they will earn. Valuation is falling – presumably they are paying debt on work in progress but not making progress due to lack of funds.
At a company level they have £29.5m of debt vs a NAV of £237.5m or £0.35 per share. This is a tenth of the current share price. Given the valuation of their underlying assets I would hope there is scope for the trust to (for example, sell)their £49.6 (ish) of good assets to do something with the £246m assets.
There is ongoing bridging funding in place – and a loan is being discussed. Negotiations are said to be ‘advanced’. http://otp.investis.com/clients/uk/infrastructure-india-plc/rns/regulatory-story.aspx?cid=433&newsid=952957
I suspect if sustainable financing is announced the share price will rise significantly – hopefully rising more when projects are successfully completed. Ultimately Indian infrastructure is a decent place to invest – over the last 5 years most have a CAGR of 15-20%. This has fallen from about 65p to 3p – or about -50% every year….
This is high risk – I dont trust management, I dont trust the major shareholder / bond holder – but I think their somewhat ghetto reputation puts them on a leash. This is so cheap I am prepared to have a very small punt, with the hope of a rapid / strong return. This is something of an experiment for me – I have observed bombed out things turning round, often when they hit a tenth of NAV on a number of occassions so I am going to try investing in them in very small size.
As ever comments, positive or negative are appreciated…
