Challenger Infrastructure Fund

The sale of Challenger Infrastructure Fund’s last remaining asset, Inexus, to Brookfield has now settled. The stock ceases to trade at the close of business Wednesday, 24 October, and those who don’t sell in the meantime will receive payment of $1.29 per unit on 2 November.

If Inexus is able to successfully roll its debts at the end of November, there will be a further contingent payment of 11 cents from Brookfield (the amount has shrunk a little because of AUD/GBP exchange rate movements), and perhaps another 1 cent from residual capital of CIF, probably to be received early in 2013. So securityholders will receive $1.29-$1.30 if the refinancing is unsuccessful, and $1.41 or so should the refinancing occur.

Those who want to take their chips off the table by selling on the market should do so by Wednesday 24 October. But we guess that the probability of refinancing is fairly good, and note the appearance of several nominee companies on the register—probably representing arbitrageurs betting on a successful outcome. For the stock in our Growth and Income portfolios, we’re going to continue holding. But we can also see the argument for selling, too, and so highlight it as an option.

Overall, our experience with CIF has been a good one. It’s down a little since our original recommendation of 1 Jul 09 (Buy for Yield – $1.50) but, including distributions paid of 38 cents over that period, the return will end up being somewhere around 5% per annum. Those who jumped in at our later recommendation change on 25 November 10 (Long Term Buy – $1.12) have done much better, and the subsequent upgrade in Challenger Infrastructure’s flaming buy of 30 Jun 11 (Buy – $0.94) better again, with the latter yielding 56% (including distributions) in just 16 months. We’ll provide an update on the contingent payment when more details come to light. For now, we just wanted to note that if you want to sell on the market, it’s time to act. HOLD.

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