Challenger Infrastructure Fund

A 31-page ‘Notice of Meeting and Explanatory Memorandum’ will land in the letterboxes of Challenger Infrastructure Fund securityholders soon. A meeting is scheduled for 15 August to decide on the fund’s future. You’re being asked to vote on a ‘sale of the main undertaking’, which means the sale of Inexus and consequent winding up of CIF with all net proceeds returned to securityholders. We outlined the sale and wind up in greater detail in CIF: Inexus sale boost of 26 Jun 12 (Hold – $1.29). Management and the board have done an excellent job extracting value for owners—reflected by total shareholder returns approaching 50% over the past year versus negative returns from the broader market—and the proposal is in the best interest of owners. So we suggest you vote in favour. For those wishing to vote online or via post, proxy forms must be received by 11am on 13 August.

A bigger question is what to do now? There is an argument for selling on the market today. Ignoring the yet-to-be paid 5-cent final distribution, which has already traded ex-distribution and will be paid in late August, the only guaranteed payment from the wind up (assuming the proposal is passed as expected) is a $1.28 initial distribution in October. There’s the possibility of a further 12 or 13 cent final distribution at the end of the year (or possibly in instalments) but that is contingent on Inexus rolling its debts successfully in August. At the current price of $1.33, at least part of that second distribution is being priced into the stock. There’s probably enough remaining marrow to justify holding on for now but, all things being equal, we’re likely to downgrade to sell around $1.36. Those with more pressing uses for their cash might consider selling today, but our recommendation remains HOLD for now.

Note: The model Income and Growth portfolios own Challenger Infrastructure Fund securities.