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Home | RARE Infrastructure Value Fund Market Commentary – July 2010

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RARE Infrastructure Value Fund Market Commentary – July 2010

August 10 2010

Global Markets improved in July,having fallen in previous months. All major markets were up in July. Developed markets (MSCI World) were up 5.9% and Emerging Markets (MSCI EM local)were up 3.7%.During the month globalinvestors were buoyed by generally good earnings results positive macro news.

European bank stress tests were better than expected and the Basel III global bank regulatory proposals were more lenient than expected. Some European bank stocks were up 30%. As a consequence of the positive earnings results and macro news investors returned to “nsk assets” having fled such assets in prior months.

Infra Regulation: Aéroports de Paris signed the new Economic Regulation Agreement with the French government for the 2011-2015 period. This included real price increases of 1.4% per annum and a move towards a ‘dual till’ structure. The details were in line with RAREs expectations, and the stock gained ~7% on the announcement.

Infra M&A:

* CPPIB offered A$3.47bn for North American Toll Road Intoll (37% above the last share price), in its second attempt to buy a Australian listed Toll Road in eight months. The directors were yet to recommend shareholders to accept or reject the all cash bid by the end of the month.

* France’s EDF sold its UK electricity network to Hong Kong’s Cheung Kong for GBP5.8bn. The price, which includes debt, was higher than market estimates, with CKI the Abu Dhabi Investment Authority and Australia’s Macquarie. The sale lead to positive read through to portfolio water stocks.

* Abertis’s major shareholders ACS and La Caixa announced they were in talks with CVC Capital partners in a potential €26bn leveraged buyout. While there is still mixed speculation on any deal eventuating, the stock is still trading up ~10% since the announcement.

Infra Funding: Abertis buyout referred to above is dependent on €6bn in bank finance. The market view is that banks are struggling to provide this finance in the current market.

JP Morgan Infrastructure Fund is buying the Spanish Ports business from ACS (a major shareholder in Abertis)for €700-€800 mn, subject is debt financing. Given the size of this funding it should be more achievable than the debt required for the Abertis restructure.

Other Infra News. Russian Prime Minister Valdamir Putin wants greater private investment in airports as he believes “airports are key to developing and allowing it (Russia) to reach its full potential.”