Banking on the ferries

Friday, November 23, 2012

 

LETTERS From Chris Innis, Niton:

WIGHTLINK is owned by Macquarie Bank, an Australian investment bank known as the "millionaire factory", which made a living in the boom, leveraging infrastructure assets, preferably monopolies, and securing them in investment structures sold on to institutional investors but managed by Macquarie Bank.

This activity brought the bank some hefty profits as it generally took the assets onto its balance sheet and sold on at a higher price with a significant management fee attached.

Wightlink was to be one of those kind of investments. Macquarie saw Wightlink as a near monopoly infrastructure asset, like Sydney Airport, or a toll road.

It paid, from memory, £125 million in about 2006/7.

It was the bank’s first investment in the ferry business, so many of the assumptions it made in buying the business might have been optimistic or, at best, not well informed as the experience of the Island was probably limited to Cowes Week.

I also understand Macquarie was well ahead of the other bidder.

The multiple it paid for the business was about 12 times, high for an infrastructure asset.

It then spent £15 to £20 million on new ferries.

Three years ago, profits were about £10 million, last reported profits were about £7 million and, if CEO Russell Kew is to be believed, (he mixes operating profits with extraordinary items), operating profits must now be lower than £7 million. What all this represents for Macquarie is an awful return on its investment.

So, this investment, by its standards, is a dud and I expect privately it wants to get rid of Wightlink.

The recent announcements reek of a business that is being dressed for sale. Macquarie will lose money on a sale and I suspect this irks it.

The business is probably worth closer to £60 to £70 million.

Nicholas Moore, CEO at Macquarie, and who oversaw the purchase of Wightlink, is making the best of a bad lot. Islanders should write to him as I suspect Macquarie, which dislikes bad press, will pay more attention if approached directly.

• Page of letters on this topic in the Friday, November 23, County Press.

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