tfwee wrote:

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tfwee wrote:

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Extracted from the prospectus page: 175

Quarterly Performance Fees = 20% * (Quarterly Total Return on Cityspring Units - Quarterly Total Return on Benchmark Index - Deficit)

where

Quarterly Total Return on Cityspring units = Beginning of Quarter Market Capitalisation * % Change of Cityspring Accumlated Return Index for the Quarter

Quarterly Total Return on Benchmark Index = Beginning of Quarter Market Capitalisation * % Change of Benchmark Index for the Quarter

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Benchmark Index is based on MSCI Asia Pacific (ex-Japan) Utilities Index, To find the benchmark index performance, please click Here

 

 

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-- Edited by tfwee at 23:37, 2007-09-10

From BT - 31 Aug 2007

CitySpring Infrastructure to sell A$866m of bonds

Proceeds from debt will be used to pay for purchase of Aussie power cable

CITYSPRING Infrastructure Management Pte, a unit of Singapore's Temasek Holdings, plans to sell A$866 million (S$1.08 billion) of bonds to pay for its purchase of the Basslink power cable in Australia, Standard & Poor's said yesterday.

The debt, to be issued by Premier Finance Trust Australia, is rated AAA, the top investment grade, by S&P.

The deal includes A$486 million of eight-year bonds and A$380 million of securities linked to Australia's consumer price index, said Colin Atkin, a Melbourne-based credit analyst at S&P.

'The rating on the notes reflects the highly predictable revenues from the main business activity, low operating risks from the new modern asset, significant certainty over finance costs, and a supportive minority shareholder,' Mr Atkin said in the statement.

Without the backing of Temasek, the debt would be rated BBB-, the lowest investment grade, reflecting 'the credit risk of the project', S&P said.

The notes linked to the consumer price index are split into A$190 million of bonds maturing in 10 years and A$190 million of 12-year securities, Mr Atkin said in a telephone interview.

Part of the A$380 million of bonds will pay interest regularly and principal at par maturity. The principal payment for the rest will depend on the consumer price index, he said.

The notes have a recovery rating of 2, indicating investors can get between 80 and 100 per cent of their money back if the borrower defaults, S&P said.

First Australian Investment CitySpring agreed to buy the power cable from London-based National Grid plc for A$1.175 billion in the Singapore infrastructure owner's first investment in Australia.

The Basslink cable, built for A$780 million, started operating in April last year, allowing Tasmania to import electricity from the mainland during dry periods and export surplus hydro- and wind-generated power.

The sale represents 16.4 times Basslink's earnings before interest, tax, depreciation and amortization for the year ended March 31, National Grid said on July 31.

The 370-kilometer cable, which has a capacity of 600 megawatts when transmitting power to the Australian mainland and 480 megawatts in the reverse direction, operated at more than 99.7 per cent availability in the first year of operations, Basslink said last month.

CitySpring Infrastructure Management manages CitySpring Infrastructure Trust, which listed shares in Singapore in February.

The trust owns City Gas Trust, the monopoly producer and retailer of so-called town gas in the city-state and 70 per cent of SingSpring Trust, a local water-treatment company.

Goldman Sachs JBWere Pty and Societe Generale are managing the bond sale.

Date of notice to issuer: 12-06-2007 

Date & Time of Broadcast:  29-May-2007 08:48:13 

21-May-07

$60m lesson, courtesy of CitySpring

THERE is a lesson for investors from the recent $56.1 million net loss by CitySpring Infrastructure Trust - look closely at the fee structure of a new issue before you buy. This is especially relevant now that there are more such vehicles listing here in the form of trusts or structured funds. Investors should look for those with fee structures that reward true effort and skill by the managers.

Future managers of such funds should also take note of the unhappiness of shareholders over the huge fees pocketed by CitySpring's management. There is no sound reason for rewarding managers with shareholders' money for the price increase on debut of a new listing.

CitySpring's net loss was due almost entirely to the unexpectedly large management fee of $63.4 million, of which $62.5 million was due to performance fees triggered by a sharp increase in its share price in the seven weeks from its Feb 12 listing.

The initial public offer may have been substantially underpriced - if so, the price surge on listing was due to investors paying what they saw as the fair value of the shares. But over such a short period, it is hard to see how the managers could have played a significant part in creating additional value for their shareholders.

CitySpring is not the only fund to have paid out so much to its managers for what some investors see as so little effort. Managers of the Macquarie International Infrastructure Fund (MIIF) earned $28.1 million in performance fees just five weeks after its listing on May 27, 2005. This was due almost entirely to a 16 per cent increase in its share price, from the listing date to June 30, 2005.

Solution

There are simple solutions to this problem. One is to exclude the share price performance on the first day of listing and base the performance fee calculation on the total return of the shares from the closing price on the first day, rather than the initial offer price.

Even better, waive the performance fee for the first two reporting periods. This would mean any increase in the share price immediately after the fund's listing - no matter how impressive - would not trigger a performance fee.

The earliest reward, if any, would be for share price appreciation that occurs over the quarter, half-year, or full-year - depending on how frequently the fee is assessed - that starts more than three months after the fund's listing.

This is in stark contrast to what happened with CitySpring and MIIF, and is arguably more palatable to shareholders. It is a lot more plausible that any outperformance of a benchmark by the share price three months or more after listing is due to sound investment decisions made by the management, rather than a sudden surge in demand for the fund's units.

A third alternative is to cap the fee at some reasonable level. The MacarthurCook Property Securities Fund, which was listed on Dec 22 last year, limits the performance fee, which is assessed yearly, to A$2 million (S$2.5 million) or 0.5 per cent of the fund value at the end of the financial year, whichever is lower. A similar cap would have prevented the performance fees ballooning out of all proportion to revenues in CitySpring's case.

Dilution

CitySpring's managers chose to pay themselves most of the management fee in shares, rather than cash. There are investors who think that a slight dilution of their stake is of little consequence, and that a bottomline net loss is unimportant, as long as the fund maintains its targeted cash distributions per unit.

This is a mistake.

It is true that in a business trust, as with similar investment vehicles, what matters most to shareholders is the amount of cash generated by its investments available for distribution, and CitySpring has said that it is on target to meet its per-unit distribution projections for the current financial year to next March-end.

But the 40 million new units issued to pay the bulk of the management fee have enlarged CitySpring's total share base, to 490 million units from 450 million, without any actual injection of new capital. Any cash that is distributed in future will have to be spread more thinly.

Put differently, the claims that all other shareholders have on the capital and future income of CitySpring have diminished by 8.2 per cent, as a result of the large management fee. The new units held by the managers rank equal with all other units and are entitled to their share of any future cash distributions - cash that could otherwise have been paid to other unitholders.

Potential investors in future funds that list here should look very closely at the fee structure of the fund, lest they be caught out again.

16-May-07

Are performance fees fair?

Investors should know a fund's fee structure before they invest, and if there is a performance fee they should examine if the benchmark is truly reflective of a fund's exposure

PERFORMANCE fees are creeping into the Singapore funds landscape, both in the listed and unlisted sectors, thanks to the entry of more absolute return-oriented funds. In the listed funds arena in particular, performance fees are almost par for the course, as most real estate investment trusts (Reits) and infrastructure funds include these in their fee structures.

But are performance fees fair? Over the weekend, newly listed CitySpring Infrastructure Trust announced its first set of quarterly results for the Feb 12-March 31 period. In that brief period - the fund was listed in February - the accounts were hit with a management fee of $63.43 million, the bulk of which was in performance fees.

This dragged down the quarterly profits to a net loss after tax of $52.33 million. The fund has affirmed that it will continue to pay a distribution per unit (DPU) of 0.78 cents on June 15 for the first-quarter period. But investors are likely to ask: As the performance fee has kicked in so soon after the fund's listing, what value has the fund manager added?

Most managers contacted for their views decline to be named. Fees, they say, are a sensitive issue.

First off, the question of whether performance fees are fair is one that is hotly debated even among fund managers. The rationale for such a fee is typically to incentivise a manager to generate value for unitholders. The flip side of this argument is that a fee may also incentivise a manager to take excess risk to hit his target. But on a more fundamental level, the big question is how is this excess value to be measured.

Typically a base annual management fee applies. A performance fee, if it exists, may be charged based on outperformance against a benchmark or a pre-specified hurdle rate.

In the unit trust market, those with performance fees are still a minority but there is an increasing number of structured funds with an absolute return objective. They charge a performance fee if returns exceed a cash rate plus a certain margin.

Among long only equity funds, those that charge a performance fee may specify an absolute return hurdle plus a high water mark proviso. The latter means that the fund must recover any previous period's under-performance before it can begin to charge a performance fee.

HSBC's Global Emerging Markets Freestyle and Bric Freestyle funds, for example, will take 20 per cent of any excess return over a hurdle of 5 per cent. Some Henderson equity funds will collect a fee on outperformance against their benchmarks.

More notably, APS Asset Management's Alpha fund remains the only unit trust that will not collect any management fee if its returns do not beat its 6 per cent hurdle rate. For returns above 6 per cent, the fund will take a 30 per cent share.

Chairman Wong Kok Hoi says the fund has collected some performance fee for an earlier period. The fund, however, has under-performed its peers. 'We have made money for clients, and we have some fees but not much. We don't deserve to earn any fees, we didn't do great.'

In the listed funds sector, there is little uniformity in how performance fees are structured. Among Reits, for instance, some levy a charge based on net property income or even a per cent of gross revenue, or growth in DPU.

In CitySpring's case, the benchmark is the MSCI Asia Pacific (ex Japan) Utilities Index on a total return basis, which means dividends plus capital gain. There is no hurdle rate. CitySpring's stock, in fact, outperformed its benchmark by 74.3 per cent in this period as the unit price shot up from 0.89 cents at the IPO to $1.49 on March 30, while the index fell by 4.5 per cent.

Arguably, wealth was generated for unitholders, even if the price spike was a factor outside the manager's control.

If you recall, a similar situation arose with the listed Macquarie International Infrastructure Fund in 2005, when it booked a performance fee of $28 million in its June 30 accounts shortly after its May listing. The fund, however, remained in the black in the period.

There are some key differences in the factors that could affect unit price behaviour in the listed and unlisted funds sector. Among unlisted funds, where units are created and redeemed through banks and other distributors, unit prices are generally less vulnerable to the factors that easily move share prices such as liquidity and sentiment.

But a fund that is listed on an exchange would be subject to liquidity flows and the extremes of fear and greed - factors that are totally unrelated to its intrinsic value and are out of a manager's control. Performance fees calculated quarterly would also tend to reward short-term price gains that could just as easily evaporate in the next quarter.

CitySpring chief financial officer Tong Yew Heng says: 'Our key consideration (in the fee structure) is the alignment of the interests of the manager with the unitholder. The incentive component is linked to performance and it is paid only if the trust performs.' The fee will be paid in units and there is technically no moratorium on the units. Mr Tong, however, tells Executive Money: 'We are holding the units; we have no intention to sell them.'

Says a fund manager who declines to be named: 'We've been through this debate. How do you structure an equitable performance fee? I think it should be against an absolute return benchmark or hurdle rate. Perhaps take an estimate of sustainable economic growth rate plus inflation expectation plus equity risk premium. You'll get about 8 per cent for global equity. Or, if you take a cash rate like Libor plus 2 per cent, you'll also end up with 8 per cent.'

Macquarie's MIIF, incidentally, sets an 8 per cent hurdle rate. Its performance fee gives it a 20 per cent share of the excess return above 8 per cent.

Says another manager who himself runs a performance fee-based fund: 'You should be measuring a manager based on factors he can control, such as profits or cash generation. You can have a manager with poor-quality stocks in his portfolio but the market is bullish. Those stocks go up a lot and the manager is paid. Another manager has high-quality stocks that are not as speculative and the value doesn't go up.'

Yet another manager says: 'I wouldn't mind paying a manager if his projects can earn a return above the internal rate of return (IRR) that the fund has targeted . . . Eventually the share price will reflect the IRR.' This is because the market is basically a discounting mechanism; the price discounts the expected future cash flow.

For investors, the bottom line is that they should be familiar with a fund's fee structure before they invest. If there is a performance fee, examine if the benchmark is truly reflective of a fund's exposure. A high water mark would favour investors. And make sure that fund performance is not reset to a new base every year, as this would mean that any previous under-performance is erased.

Extracted from the prospectus page: 175

Quarterly Performance Fees = 20% * (Quarterly Total Return on Cityspring Units - Quarterly Total Return on Benchmark Index - Deficit)

where

Quarterly Total Return on Cityspring units = Beginning of Quarter Market Capitalisation * % Change of Cityspring Accumlated Return Index for the Quarter

Quarterly Total Return on Benchmark Index = Beginning of Quarter Market Capitalisation * % Change of Benchmark Index for the Quarter

Extracted from Prospectus Page 82



-- Edited by tfwee at 12:32, 2007-05-15

Went back to read the prospectus again after the result is annouced. One of the point presented by Cityspring is

Point to note from the result from Cityspring:

13 May 2007
For Immediate Release

Key Highlights:


-- Edited by tfwee at 11:50, 2007-05-14

CITYSPRING INFRASTRUCTURE TRUST
(Business Trust Registration No. 2007001)
Base Fee and Performance Fee for period ended 31 March 2007
Fees for period ended 31 March 2007

CitySpring Infrastructure Management Pte. Ltd. (Trustee-Manager), as trustee-manager of CitySpring Infrastructure Trust (CitySpring), wishes to announce that a performance fee of S$59.5 million and a base fee of S$0.9 million are payable to the Trustee-Manager for the period ended 31 March 2007.
Appendix 1 hereto sets out the computation of the base fee and performance fee, which computation has been certified by Ernst & Young Corporate Finance Pte Ltd.

Performance Fee
In the period since CitySprings initial public offering (IPO) and the listing of the units in CitySpring (Units) on the Singapore Exchange Securities Trading Limited (SGX-ST) on 12 February 2007 to 31 March 2007, total unitholder value increased by S$270.0 million.1 The Units were offered at S$0.89 each pursuant to the IPO, while the closing price of the Units on the SGX-ST on 30 March 2007 was S$1.49.

Over this period, the CitySpring Accumulated Return Index (as described below) increased by 69.8% while the Benchmark Index (as described below) decreased by 4.5%. CitySpring has therefore outperformed the Benchmark Index by 74.3% over the period and this outperformance results in a performance fee payable to the Trustee-Manager of S$59.5 million, excluding goods and services tax (GST).

Under the trust deed dated 5 January 2007 constituting CitySpring (Trust Deed), the Trustee-Manager will receive a performance fee, calculated and payable quarterly in arrears, if the Total Return on CitySpring Units (as described below) exceeds the Total Return on the Benchmark Index (as described below) for the relevant period, after taking into account any underperformance carried forward from prior periods. The performance fee is equal to 20% of the outperformance over the period. The CitySpring Accumulated Return Index measures the cumulative performance of CitySpring on a total return basis (including reinvestment of all distributions) from CitySprings listing date. This index was used to calculate the Total Return on the CitySpring Units for the period since CitySprings IPO on 12 February 2007 to 31 March 2007.

The Benchmark Index is the MSCI Asia Pacific (excluding Japan) Utilities Index on a total return basis rebased in Singapore Dollars. This index was used to calculate the Total Return on the Benchmark Index for the period since CitySprings IPO on 12 February 2007 to 31 March 2007.

Base Fee
Under the Trust Deed, the Trustee-Manager will receive a base fee payable quarterly in arrears and equal to 1.00% per annum of the Market Capitalisation of the Units2, subject to a minimum of S$3.5 million per annum. In the period since CitySprings IPO on 12 February 2007 to 31 March 2007, the base fee payable to the Trustee-Manager is S$0.9 million, excluding GST.

Fees to be Paid in New Units
Under the Trust Deed, the Trustee-Manager is entitled to elect to receive all or any part of the base fee and performance fee in new Units instead of cash. Pursuant to the Trust Deed, and the mandate given to authorise the issue of new Units to satisfy payment of such fees, the Trustee-Manager has elected to be paid in Units for:
(1) the full amount of the performance fee for the period ended 31 March 2007; and
(2) 50% of the base fee for the period ended 31 March 2007.
The issue price of the Units to be issued to the Trustee-Manager will be equal to the volume weighted average price of Units traded on the SGX-ST over the last 15 trading days of the period ended 31 March 2007, being S$1.5005. Based on such issue price, a total of 39,965,504 new Units will be issued to the Trustee-Manager, increasing the number of Units in issue from 450,000,000 to 489,965,504 Units. Upon the aforeasaid issue of Units, the Trustee Manager would hold an aggregate of 39,965,504 Units.

The new Units will be issued, and the remaining base fee will be paid in cash, to the Trustee-Manager within 15 business days after 31 March 2007 (i.e., on or prior to 23 April 2007).

New Units
The new Units to be issued to the Trustee-Manager will:
(1) be issued credited as fully paid-up;

(2) will rank pari passu in all respects with all other Units in issue, except only that such new Units will not qualify for any distribution to be declared for the period ended 31 March 2007. The new Units will however be entitled to distributions for all periods commencing on or after 1 April 2007; and

(3) will be listed on the SGX-ST.
The Trustee-Manager has no current intention of disposing of the new Units.
GST to be paid in cash The GST payable in respect of the base fee and performance fee will be payable in cash.

Projected Distributions
The Trustee-Manager reaffirms the projected distributions stated in the IPO prospectus (Prospectus) dated 30 January 2007:
(1) for the period ended 31 March 2007 of 0.8 cents per Unit; and
(2) for the year ending 31 March 2008 of 6.0 cents per Unit.
The issue of the new Units in satisfaction of the performance fee and base fee will not impact the per Unit projected distributions set out above.
The Trustee-Manager expects to announce the record date to determine entitlements to the projected distribution for the period ended 31 March 2007, as well as the payment date for such projected distribution, when it releases CitySprings financial results for that period.

By Order of the Board of CitySpring Infrastructure Management Pte. Ltd.
as trustee-manager of CitySpring Infrastructure Trust
31 March 2007
Singapore

KK wrote:

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Balloting results are out. 48.7x over-subscribed!

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Woah, so hot. And the balloting result show that it is very well distributed across the board. Look like can make coffee money already when it listed on SGX. Need to apply 1000 lots in order to get 5 lots only. May need 2 or 3 days before the market will settle for this stock.... because they are alot of one or two lots share holders from the IPO. :)