Macquarie Korea I F - Capital restructuring of Woomyunsan Tunnel project

Macquarie Korea Infrastructure Fund

14/01/2016 08:32

RNS Number : 8503L

Macquarie Korea Infrastructure Fund

14 January 2016

14 January 2016

MACQUARIE KOREA INFRASTRUCTURE FUND

CAPITAL RESTRUCTURING OF WOOMYUNSAN TUNNEL PROJECT

Macquarie Korea Infrastructure Fund ("MKIF") today announced that Woomyunsan Infraway Co., Ltd. ("WIC"), the concessionaire of Woomyunsan Tunnel, has entered into definitive agreements, including the Amended Concession Agreement, to restructure its capital, involving new debt facilities and reduction of the share capital (the "Transaction"). The financial close will take place on the same day1.

Woomyunsan Tunnel is a 30-year concession toll-tunnel and has been in operation since January 2004. MKIF owns 36% of equity (KRW 10.7 billion) and 36% of subordinated debt (KRW 9.6 billion) in WIC, constituting 1.2% of MKIF's portfolio on a committed amount basis.

The key aspects of the Transaction are:

 Introduction of a revenue partitioning structure (the "Revenue Partitioning")2 to replace the existing Minimum Revenue Guarantee (MRG) provision3

 Under the Revenue Partitioning, the existing subordinated debt and equity effectively take priority in being paid from WIC's actual revenue cashflows only after operating expenses, all paid out of a disposable income account (The "Disposable Income Account")4

 The balance cashflows will be separately managed under the surplus income account (the "Surplus Income Account") for servicing remaining obligations including other debt and corporate taxes (the "Remaining Obligations").

 The Payments of the Remaining Obligations will be supported by the Seoul Metropolitan City ("SMC") for the shortfall5

The net effect of the Transaction is that the cash flows to MKIF no longer will rely on MRG payments but rather on actual revenues generated by WIC, where the revenues are expected to be sufficient6 to meet MKIF's target return and yield.

The overdue MRG payment7 was settled as part of the Transaction.

A summary of the Transaction

Before
After
Key changes
Shareholding
MKIF (36%)
Three domestic financial investors (64%)
MKIF (36%)
Fund 1 (49%)
Fund 2 (15%)
MKIF's shareholding remains unchanged
Fund 1 and 2 established as the investment vehicles for financial institutions
Capital reduction
KRW 26.6 billion
KRW 11.6 billion8
Capital reduction: KRW 15.0 billion
Premium amount: KRW10.6 billion
Total proceeds: KRW 25.6 billion
Repayment of the existing senior debt/
Raising of new Shareholder Debt A
Senior debt of KRW 71.4 billion
Shareholder Debt A of KRW 121.4 billion
Lender: Fund 1 (50%) and Fund 2 (50%)
Interest rate: 3.7% p.a.9
Maturity extended by 11 years to 2033 (repayment schedule not fixed)
Interest and principal payment sourced from the Surplus Income Account and supported by SMC
Repayment of the existing subordinated debt/
Raising of new Shareholder Debt B
Subordinated debt of KRW 26.6 billion
Shareholder Debt B of KRW 21.2 billion
Lender: MKIF (70.6%) and Fund 1 (29.4%)
Interest rate: 12.0% p.a. (fixed)
Maturity extended by 6 years to 2032 (Amortisation period of 3 years from March 2030)
Settlement of the unpaid interest on the existing subordinated debt (KRW 7.1 billion)
Interest and principal repayment sourced from the Disposable Income Account
Toll fare
Current toll fare of KRW 2,500 10
Fixed at KRW 2,500 until the end of the concession


The impact on MKIF from the Transaction includes:

 One-off accounting gain of KRW 18.7 billion, representing KRW 56 per share11

 One-off net cash inflow of KRW 18.6 billion

 Settlement of the unpaid interest on MKIF's subordinated debt of KRW 2.6 billion

 The risk associated with the toll fare changes in the future are removed

MKIF investment in WIC12

Pre-Transaction
Post-Transaction
Equity amount
KRW 10.7 billion (36.0%)
KRW 5.3 billion (36.0%)
Shareholder loan
KRW 9.6 billion (Subordinated loan)
KRW 15.0 billion
(Shareholder Debt B)
Total investment
KRW 20.3 billion
KRW 20.3 billion
% of MKIF portfolio
1.2%
1.2%

1. The capital reduction process is scheduled to close on 15 February 2016

2. Revenue waterfall under the Revenue Partitioning illustrated below

Actual toll revenue
1st payment
Disposable Income Account
Operating costs
Shareholder Debt B Interest
Shareholder Debt B Principal
Reserved for Dividend
2nd Payment
Surplus Income Account
Corporate tax
Shareholder Debt A Interest
Shareholder Debt A Principal
SMC collection
Payment guaranteed by SMC


3.  Previous Concession Agreement guaranteed support payment up to 79% of forecasted revenue (78% applied from 2024 till the end of concession). In the amended Concession Agreement, an anti-competing road clause is added that compensates revenue loss through support payments

4.  Preset amount will be first reserved from WIC's cash revenue and deposited in the Disposable Income Account

5.  After all "Remaining Obligations" are paid from the Surplus Income Account, WIC will provide the remaining cash from the account to SMC

6.  Approximately ~70% of the current traffic level is expected to be sufficient to cover MKIF's target return and yield

7.  Unpaid support payment from 2012 to 2015 of KRW 22.6 billion

8. Total proceeds paid to MKIF of KRW 12.9 billion (capital reduction of KRW 5.4 billion/premium KRW 7.5 billion).

9. Weighted average rate of fixed tranche at 4.2% p.a and floating tranche at 5yr Government bond rate +130 bps p.a.

10. Toll fare under the previous Concession Agreement was KRW 3,000 from 2015 until the end of the concession

11. Prepayment fee of the existing subordinated debt (KRW 8.6 billion) and gains on capital reduction (KRW 10.1 billion)

12. On a commitment basis

For further information, please contact:

Jason Pak
Chief Operating Officer
Macquarie Korea Asset Management
+ 82 2 3705 8550
Jason.Pak@macquarie.com
Ally An
Investor Relations
Macquarie Korea Asset Management
+ 82 2 3705 8565
Ally.An@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, as amended (the "Securities Act"), or in any jurisdiction where such offer or sale is not permitted. The securities of MKIF have not been registered under the Securities Act, and may not be offered or sold in the United States absent registration or exemption from registration under the Securities 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 document is only being distributed to and is only directed at (i) persons who are outside the United Kingdom or (ii) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "Order") or (iii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as "relevant persons"). Any securities will only be available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire any securities will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.

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 46 008 583 542 (MBL). MBL does not guarantee or otherwise provide assurance in respect of the obligations of these entities.

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.

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