The Bold New Structure in Infrastructure

If the thought of investing in infrastructure makes you yawn, wake up!

With a resounding "BAM," one of the most compelling investment vehicles in the infrastructure space is growing in all the right areas. Backed by a $1.1 billion investment to recapitalize the infrastructure subsidiary of bankrupt Australian asset manager Babcock & Brown, Toronto's Brookfield Asset Management (NYSE: BAM  ) and subsidiary Brookfield Infrastructure Partners (NYSE: BIP  ) have taken one seriously opportunistic leap into strategic new assets.

The last time I checked in with BAM's BIP, persistent weakness from the subsidiary's timberlands segment continued to weigh upon shares, and my earlier call for the company to acquire assets in transportation and utilities remained just a pipe dream. But after the company gained shareholder approval to proceed with a recapitalization plan for Babcock & Brown assets, that pipe dream has blossomed into pipelines, ports, and railroads.

Brookfield Infrastructure Partners will acquire as much as 40% of the restructured Babcock & Brown entity, which will emerge with a fitting new name: Prime Infrastructure. This portfolio's prizes include an extensive railroad network and a trio of natural gas pipelines in Western Australia. Fools will note that Western Australia is home to significant natural gas resources that feed pipelines through terminals such as Apache's (NYSE: APA  ) Varanus Island facility, and that massive mineral mines operated by the likes of BHP Billiton (NYSE: BHP  ) and Rio Tinto (NYSE: RTP  ) imply long-term demand for both natural gas and regional railroads. Under the recapitalization plan, the Australian gas pipelines will be "held for sale" and managed by Brookfield Asset Management, while the railroad will remain in the Prime Infrastructure portfolio.

Prime Infrastructure's energy unit will also include electricity and gas distribution assets in the U.K., the Channel Islands, and New Zealand. In the U.S., Prime will retain a 26.4% interest in a Midwestern gas pipeline operated by Kinder Morgan Energy Partners (NYSE: KMP  ) . Finally, a series of port concession businesses in Europe and China round out a truly global asset portfolio.

Apart from the stake in Prime Infrastructure, the deal will transfer 100% of a major U.K. container port operation called PD Ports to Brookfield Infrastructure.

In case you're still groggy, I've saved the best for last. Positioning itself to profit from burgeoning export demand for Australian coal, the deal also gives BIP a direct 49.9% stake in the Dalrymple Bay Coal Terminal in Queensland. With miners like Peabody Energy (NYSE: BTU  ) ramping up Australian production to quench China's thirst, I view a major stake in the world's largest coal export facility as the Foolish feather in Brookfield's new cap.

Brookfield Infrastructure Partners L.P. is a Motley Fool Inside Value pick and a Motley Fool Hidden Gems selection. Brookfield Asset Management is a Motley Fool Global Gains recommendation. The Fool owns shares of Brookfield Infrastructure Partners L.P. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Christopher Barker can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of BHP Billiton and Peabody Energy. The Motley Fool has a disclosure policy.


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  • Report this Comment On November 18, 2009, at 10:33 AM, silverminer wrote:

    To be clear, the recapitalization plan creates as much as a 70% interest for BIP in the Dalrymple Bay Coal Terminal. 49.9% will be acquired as a direct stake, while as much as a 20% indirect interest will result from BIP's equity stake in Prime Infrastructure.

    Fool on!

  • Report this Comment On November 20, 2009, at 9:13 AM, silverminer wrote:

    BIP announced completion of the recapitalization plan 11/20, and in the final stage its parent BAM and other co-investors were dealt in for a share of the DBCT. BIP retained only 60% of the two direct investments noted above (the UK ports and a 49.9% stake in the DBCT). The remaining 40% of those direct investments will go to BAM and co-investors, and BIP may yet unload another 10% slice of those direct investments.

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