MACQUARIE KOREA INFRASTRUCTURE FUND CAPITAL RESTRUCTURING OF INCHEON BRIDGE CO., LTD.

Transcription

1 Macquarie Korea Infrastructure Fund 9 th Floor Hanwha Bldg Telephone (82 2) Sogong-ro Facsimile (82 2) Jung-gu, Seoul Internet Korea 14 August 2017 CAPITAL RESTRUCTURING OF INCHEON BRIDGE CO., LTD. Private Infrastructure Investment Korea Co., Ltd. ( PIIK ), a wholly owned subsidiary of Macquarie Korea Infrastructure Fund ( MKIF ) and a 41.02% shareholder of Incheon Bridge Co., Ltd. ( IBC ), the concessionaire of Incheon Grand Bridge ( IGB ), today executed definitive agreements including an amended Concession Agreement for IBC to undertake (i) debt refinancing, (ii) shareholder changes and equity capital redemption, and (iii) a toll fare reduction of IGB (together the Transaction ). The Transaction results in a net increase of MKIF investment in IBC by KRW billion (the Investment ). IBC has a 30 year concession ( ) granted by the Ministry of Land, Infrastructure and Transportation ( MOLIT ) to maintain and operate IGB, a 12.3km tolled bridge, connecting Song-do Free Economic Zone in Incheon City and Incheon International Airport located in Yeongjong Island. MKIF holds 41.02% of equity (KRW 67.5 billion 1 ) through PIIK and 57.78% of subordinated debt (KRW 89.4 billion 2 ) in IBC. Together with the equity premium (KRW 7.0 billion), the Investment in IBC constitutes approximately 10.1% 3 of MKIF s portfolio on an investment amount basis. Due to the growth in air travel and the development of residential and commercial projects, IBC has delivered traffic volume and EBITDA 4 growths of 10% and 14%, respectively over the past 7 years ( ) and achieved an average daily traffic of approximately 46,349 during the first half of 2017, representing 87% of the Concession Agreement forecast on average. As one of the only two connecting roads 5 between Yeongjong Island and the west hinterland of Seoul, IGB is an essential road for serving both air and recreational travellers and commuters. The Transaction represents an opportunity for MKIF to make a return from accretive investment in a familiar and well-performing asset and also gain better operational control through stronger board representation. In addition, MKIF has been able to negotiate and execute the Transaction on favourable terms, creating a scope for reduction in the toll fare for the users of IGB. We expect the Investment to be yield accretive and positive from valuation and return perspectives, said Mr. Chul Hum Paik, the representative director of Macquarie Korea Asset Management Co., Ltd., the manager of MKIF. Transaction (refer to Appendix A) The Transaction primarily involves: Refinancing of the existing senior debt (KRW billion 6 ) on improved terms and extended maturity Refinancing of the existing subordinated debt (KRW billion 6 ) on extended maturity and increased size, and a change from floating rate to fixed rate MKIF s share purchase of 23.03% equity interest (KRW 46.2 billion) from AMEC 1. Excludes the equity premium of KRW 7.0 billion 2. Excludes the projected unpaid interest of KRW 42.5 billion as of the financial closing date (18 August 2017) 3. Disregarding the advance payment of KRW 46.2 billion made on 9 December 2016 to acquire AMEC s 23.03% equity interest 4. Earnings before interest, tax, depreciation and amortization 5. Incheon Grand Bridge and Incheon International Airport Expressway 6. Projected figures as of the financial closing date (18 August 2017) WS:MSIM_Seoul:668289:v1

2 Redemption of equity capital of KRW billion 7 to the shareholders of IBC Execution of an amended Concession Agreement to reduce toll fare from the current KRW 6,200 per small vehicle to KRW 5,500 per small vehicle (toll fare reduction effective from 15 August 2017) Transaction Summary Before After Key changes Shareholding MKIF (41.02%) AMEC (23.03%) KB Bank (14.99%) IBK (14.99%) Incheon City (5.97%) MKIF (64.05%) KB Bank (14.99%) IBK (14.99%) Incheon City (5.97%) AMEC s 23.03% sold to MKIF, increasing MKIF s shareholding from 41.02% to 64.05% Equity KRW 164.6bn KRW 61.1bn Capital redemption in proportion to shareholding(to be completed by the end of September) Cash proceeds from capital redemption attributable to MKIF amounts to KRW 66.3bn Senior debt KRW 393.4bn 8 Floating 393.4bn at 3-yr corp. AA bps p.a. Maturing in 4Q 2024 KRW 450.0bn Floating 350.0bn at 3-yr corp. AA bps p.a. Maturing in 1Q 2031 Amount increased by KRW 56.6bn Maturity extended by ~6 years 22.2% of the new senior debt is in fixed rate tranche Fixed 100.0bn at 3.40% p.a. Maturing in 1Q 2031 Subordinated debt KRW bn 8 Floating 154.7bn at 3-yr corp. AA bps p.a. Maturing in 2Q 2026 KRW bn Fixed 296.0bn at 12% p.a. Maturing in 4Q 2037 Amount increased by KRW 141.3bn Maturity extended by ~11 years Change from floating rate to fixed rate MKIF s investment increased from KRW 89.4bn to KRW 241.0bn Unpaid interest Average toll fare 11 MRG Competing road provision KRW 73.7 bn 10 None Entire unpaid interest settled MKIF s portion is KRW 42.5bn KRW 6,200 per vehicle KRW 5,500 per vehicle ~11.3% decrease as per refinancing profit sharing 80% of the Concession Same No change Agreement forecast for first 15 years (~2024) Yes Same No change Investment (refer to Appendix A) MKIF will make a net additional investment of KRW billion in IBC. The amount of KRW billion is calculated as the following. MKIF will invest a total of KRW billion in IBC to purchase 23.03% of equity from AMEC (KRW 46.2 billion, KRW 6,100 per share) and acquire additional principal of the new subordinated debt (KRW billion) provided to IBC. Approximately KRW 66.3 billion will be recycled back into the Investment from the capital redemption. 7. Based on the par value of KRW 5,000 per share; a premium of KRW 1.4 billion is to be paid to Incheon Metropolitan City 8. Projected figures as of the financial closing date (18 August 2017) % as of 11 August Projected unpaid interest on the existing subordinated debt as of the financial closing date (18 August 2017) 11. Small vehicle toll fare basis

3 The remaining balance of KRW billion will be funded via a combination of the reinvestment of unpaid interest on the existing subordinated debt (KRW 42.5 billion 12 ) and MKIF s capital (KRW billion). The Investment is expected to bring the following impact to MKIF: Increase in MKIF investment size Improvement in MKIF return and distributable earnings expected Immediate settlement of the unpaid interest on the existing subordinated debt Stronger governance position Upside potential for MKIF shareholder return subject to traffic volume increase as a result of the toll fare reduction, which applies to infrastructure assets with relatively low reliance on the MRG Increase in weighted average concession life for the portfolio by 0.2 year 13 No one-off gains/losses The financial close of the Transaction and the Investment is expected to complete by the end of September MKIF investment in IBC Pre-Transaction Post-Transaction Equity interest (shareholding) KRW 67.5 billion (41.02%) KRW 39.1 billion (64.05%) Equity premium KRW 7.0 billion KRW 15.3 billion Subordinated debt KRW 89.4 billion KRW billion Total investment KRW billion KRW billion % of MKIF portfolio % % For further information, please contact: Jason Pak Chief Operating Officer Macquarie Korea Asset Management Jason.Pak@macquarie.com Kevin You Investor Relations Macquarie Korea Asset Management Kevin.You@macquarie.com This release is not an offer or solicitation for sale of the securities of Macquarie Korea Infrastructure Fund ( MKIF ) in the United States or in any jurisdiction where any offer, sale or solicitation in respect of such securities is not permitted. Securities may not be offered or sold in the United States absent registration or an exemption from registration under the U.S. Securities Act of 1933 and the US Investment Company Act of 1940, as amended (the Act ), or in any jurisdiction where such offer or sale is not permitted. The securities of MKIF have not been registered under the Act, and may not be offered or sold in the United States absent registration or exemption from registration under the Act. There will be no public offer of the securities in the United States. Not for distribution in the United States or in any jurisdiction where any offer, sale or solicitation in respect of the contemplated securities is not permitted. This release does not take into account the investment objectives, financial situation and particular needs of the investor. Before making an investment in MKIF, the investor or prospective investor should consider whether such an investment is appropriate to their particular investment needs, objectives and financial circumstances and consult an investment adviser if necessary. MKIF or Macquarie Korea Asset Management Co., Ltd. (MKAM) is not an authorised deposit-taking institution for the purposes of the Banking Act 1959 (Commonwealth of Australia). The obligations of this entity do not represent deposits or other liabilities of Macquarie Bank Limited ABN (MBL). MBL does not guarantee or otherwise provide assurance in respect of the obligations of these entities. 12. Projected figure as of the financial closing date (18 August 2017) 13. Weighted average on an investment amount basis 14. Disregarding the advance payment of KRW 46.2 billion made on 9 December 2016 to acquire AMEC s 23.03% equity interest

4 Investments in MKIF are subject to investment risk, including possible delays in repayment or loss of income and/or capital investment. Neither MKIF, nor any member of the Macquarie Group companies, including MKAM, guarantees the performance of MKIF, the repayment of capital or the payment of a particular rate of return on MKIF securities.

5 Appendix A Capital Restructuring of Incheon Bridge Co., Ltd. 2 B Incheon Grand Bridge 7

6 A Capital Restructuring of Incheon Bridge Co., Ltd.

7 Transaction Highlights MKIF to make a net additional investment of KRW 131.5bn into Incheon Bridge Co., Ltd. ( IBC ) to acquire additional equity interest and principal in the subordinated debt ( sub-debt ) Transaction highlights MKIF increases its ownership in the IBC equity and sub-debt IBC, the concessionaire of Incheon Grand Bridge ( IGB ) is to undertake (i) debt refinancing, (ii) shareholder changes and equity capital redemption, and to effectuate (iii) a reduction in the toll fare of IGB (together the Transaction ) The Transaction results in a net increase of MKIF investment in IBC by KRW 131.5bn (the Investment ) Acquisition of 23.03% equity interest from AMEC Additional investment in the sub-debt The Investment will be funded by reinvesting the unpaid interest on the existing sub-debt and injecting MKIF s capital Targeted financial closing of the Transaction by the end of September 2017 Incheon Grand Bridge IGB provides a vital travel route to air and recreational travelers and commuters Convenient connection to Incheon Airport: services a steady number of airport users Strong growth outlook: increasing demand for air travel and major residential and commercial developments in the adjacent areas Quality asset: well-maintained and a landmark bridge of Korea; provides meaningful reduction in travel time for users as one of the two vital links to Incheon International Airport Stable business structure: long-term concession until 2039 with MRG coverage through 2024 and competing road protection clause PAGE 2

8 Transaction Summary The Transaction entails (i) refinancing of senior and subordinated debt; (ii) shareholder changes and equity capital redemption; and (iii) toll fare reduction Senior debt refinancing 4 Larger amount: principal to increase from KRW 393bn to KRW 450bn Lower interest rate Senior loan (floating): 3-yr corp. bond AA % + 1.5% p.a. 2 ( ~40bps) Senior loan (fixed): 3.40% p.a. 3 Longer maturity: matures in 1Q 2031 ( ~6 years) Pre-Transaction Senior loan 100% / 393bn Post-Transaction Senior loan (fixed) 22% / 100bn Senior loan (floating) 78% / 350bn Sub-debt refinancing 4 Larger amount: principal to increase from KRW 155bn to KRW 296bn The refinanced new sub-debt balance includes MKIF s unpaid interest on the existing sub-debt of KRW 43bn 4 Higher / fixed interest rate: 3-yr corp. bond AA % 12.0% p.a. ( ~370bps) Longer maturity: matures in 4Q 2037 ( ~11 years) Other Lenders 42% / 66bn MKIF 58% / 89bn Other Lenders 19% / 55bn MKIF 81% / 241bn Share purchase & equity capital redemption Share purchase: MKIF to acquire 23.02% of equity interest from AMEC for KRW 46bn Capital redemption: IBC book value to decrease from KRW 165bn to KRW 61bn Equity capital to be repurchased by IBC funded by the proceeds from new senior and sub-debt AMEC & IMC 29% KB & IBK 30% 5 MKIF 41% IMC 6% 5 KB & IBK 30% MKIF 64% Toll reduction Concession agreement amendment to effectuate an average toll rate reduction by 11.3% 6 beginning 15 August % as of 11 Aug 2017 (KOFIA) 2. Weighted average rate of tranche A at 3-yr. corp. bond AA % p.a. and tranche B at 3-yr. corp. bond AA % p.a. Tranche A incurs fees of 0.3% p.a. to Korea Infrastructure Credit Guarantee Fund ( KICGF ) 3. Includes interest rate of 3.2% p.a. and fees to KICGF of 0.2% p.a. Excludes the one-off expense of 0.08% in Projected figures as at the financial closing date (18 August 2017) 5. Incheon Metropolitan City 6. Small vehicle toll fare to decrease from KRW 6,200 per vehicle to KRW 5,500 per vehicle PAGE 3

9 Investment Rationale Return accretive investment in a well-performing asset with a promising growth outlook while improving governance Return and yield improvement Stronger governance Well known asset to MKIF Increased revenue income and distributable earnings for MKIF Larger exposure to sub-debt at higher interest rate Higher dividend allocation through increased ownership Majority control by MKIF Ownership to increase from 41.02% to 64.05% Better control over key business decisions and investment planning to drive future performance High performing asset ~7 years of proven track record with traffic CAGR of 9.7% 3 Currently performing at 87% 4 of the concession forecast, well above the MRG coverage 5 Return accretion expected Combined IRR (equity and sub-debt) and 5-year yield to improve post- Investment Extension of the remaining weighted average MKIF portfolio concession life by 0.2 year MKIF portfolio concession life becomes ~18.7 years Favorable alignment of interest among shareholders Remaining shareholders post- Transaction include local government 1 and financial investors 2 Financial investors combined ownership of 94% creates a well-aligned view among the shareholders on the optimal management of capital structure and cash flows of IBC Strong growth outlook Increasing demand in air travel Robust residential and commercial development pipeline in nearby areas Upside potential in traffic volume due to a drop in the toll fare Understanding of regulatory regime History of co-operation with government bodies and other various stakeholders 1. Incheon Metropolitan City 2. Senior and subordinated debt lenders including MKIF, KB Bank and IBK 3. During Traffic performance during 1H MRG coverage of 80% PAGE 4

10 Investment Funding The Investment of KRW 131.5bn will be funded by reinvesting the unpaid interest on the existing sub-debt and injecting MKIF s capital 1 Unpaid interest settlement Sub-debt refinancing as part of the Transaction involves a settlement of unpaid interest on the existing sub-debt 1 Sources (KRW bn) Reinvestment of unpaid interest on sub-debt 42.5 Funding sources The settled amount becomes part of the new sub-debt principal and therefore part of the funding for the Investment MKIF s portion of the unpaid sub-debt interest is KRW 42.5bn 1 MKIF s capital injection 89.0 Total Sources MKIF s capital Remainder of the Investment to be funded by MKIF s capital 2 Uses (KRW bn) 2 Net additional investment by MKIF MKIF Investment into IBC Increase in sub-debt lending KRW 151.6bn Total Uses Investment build-up Equity purchase from AMEC Less: proceeds from capital redemption Net additional investment by MKIF KRW 46.2bn (KRW 66.3bn) KRW 131.5bn Part of MKIF s investment in the new sub-debt and equity is reduced by the proceeds from the capital redemption, resulting in the net additional investment amount of KRW 131.5bn 1. Projected unpaid interest as at the financial closing date (18 August 2017) PAGE 5

11 B Incheon Grand Bridge

12 Asset Overview A 12.3km, dual three-lane tolled bridge connecting Incheon International Airport to the newly developed commercial area of New Songdo International District in Incheon City Asset Overview Long concession MKIF ownership since opening in 2009 ~22 years till concession expiry in 2039 Midan City New Airport Highway Seoul Proven track record ~7 years of operation Steady cashflow generation since opening Inspire IR Sky City Downside protection Growth potential MRG coverage (80%) until 2024 Competing toll road protection clause Increasing number of air travelers / Incheon International Airport users Robust residential and commercial development pipeline in the adjacent areas Incheon International Airport Paradise City IGB Songdo Incheon City FY2016 Performance 1 Annual average daily traffic 44,561 vehicles Toll Revenue 2 KRW 88Bn EBITDA Margin 83% vs % vs % vs %p record margin since opening 1. Historical performance is not an indication or guarantee of future performance 2. Toll revenue excluding ancillary revenue and government support payment PAGE 7

13 Historical Performance 1 Steadily improving revenue and EBITDA performance Traffic Performance ADT KRW bn EBITDA 2 Performance EBITDA Margin % 73% 77% 79% 79% 78% 83% Revenue Performance KRW bn Toll Revenue Ancillary Revenue Government Support Net Debt 3 to EBITDA x x 9.3x 7.7x 3 6.9x 6.1x 4.6x Based on audited financial statements and company provided materials; historical performance is not an indication or guarantee of future performance 2. Earnings before interest, tax, depreciation and amortization. Based on the toll revenue including government support payments subtracted by operating expenses. Excludes non-operating income and expenses 3. Net debt includes senior debt and standby, net of cash and cash equivalents PAGE 8

14 Growth Drivers Increasing demand for air travel as well as major commercial and residential developments will drive the growth of traffic through IGB Accessibility New Airport Highway Incheon Airport Actual passengers CAGR 7.1% ( ) Estimated passengers CAGR 4.2% 1 ( ) Estimated cargo volume CAGR 2.7% 1 ( ) Midan City Sky City Third Bridge (Plan) Seoul Gyeongin Expressway Mega resorts Residential Development Lippo & Caesars casino resort, international healthcare center, luxury hotels, theme park, concert halls, shopping malls, etc. Midan City opening expected in 2019 and Paradise City recently opened in April ,3 Yeongjong Island Incheon Airport Paradise City Incheon Grand Bridge Incheon City 2nd Gyeongin Expressway 3rd Gyeongin Expressway Sky City 2,4 Three-phase development plan until 2020 Growth in number of island residents expected Songdo Town 2,5 Connecting Road Gyeongin Express (1st, 2nd, 3rd) US$40bn development project; one of the biggest projects by investment size in Korea Steady increase in population expected through 2040 Competing Road The bridge connects to 2nd and 3rd Gyeongin Expressway, which leads to main Metropolitan residential areas such as Gwacheon, Siheung and Anyang City Songdo Town Incheon International Airport Expressway Only competing route to Yeongjong Island as of 14 August 2017 Third Bridge Incheon City is considering to build / open in 2024 IGB is protected under the competing road provision in the CA 1. Ministry of Land, Infrastructure and Transportation ( MOLIT ) s Mid-to-long-term Airport Development Plan Version 5 2. Development plans may change and actual completion/opening timeline may differ 3. Lee, Miyeon (1 Jun 2017). Yeongjong Midan City Casino Mega Resorts Await the Construction Completion. Maekyung Media Group, 4. Kim, Dongho (8 Jun 2017). Rising Expectations of Yeongjong Sky City Phase 3 Development. Sedaily, 5. Kim, Hakjun (28 Jan 2016), Reading the Meaning of Incheon population Reaching over 3 million. Seoul News, PAGE 9