Over three decades, infrastructure investor Infratil has become known for its bold ownership of assets such as Z Energy, One NZ, and Auckland and Wellington airports. Now the company, and its manager Morrison, are opening up to the Herald’s Markets with Madison with revealing insight into some of
How Infratil thrived: from Z Energy to AI data centres - 30 years of investment
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He started the firm HRL Morrison & Co, then spun out Infratil to the public market in 1994 when he saw an opportunity in infrastructure and utilities - hence the name; ‘infra’ and ‘til’.
“New Zealand had gone through its own transformation through the sale of state-owned assets under Ruth Richardson. That created opportunity.” Rob Morrison said.
When Lloyd told Rob of his idea to float a listed investment entity on the New Zealand Stock Exchange, Rob shot it down. He believed investors would need to know exactly what assets they were investing in before handing over cash.
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“So Lloyd got sick of talking to me.”
That marked one of many arguments between brothers in the business world - enjoyable argy bargy that would end too early. Lloyd Morrison died from leukemia in 2012, aged 54.
But Infratil would grow into itself, ultimately becoming one of New Zealand’s top listed companies, admired by institutional investors and analysts.
Last month it easily raised $1.1 billion on the NZX to fund new investments, including an expansion of its Australian business CDC Data Centres.
“It had a nice ring to it, the $1b,” Infratil’s current chief executive Jason Boyes told the Herald’s Markets with Madison at one of CDC’s Auckland data centres.
“There’s a lot of growth in places, mostly like this, that we felt it was prudent at that time to get the funding sorted for now.
“And every day we’ve had it done, we feel better that we’ve got it done, because the world is a volatile place and who knows what the balance of this year will bring.”
Digital focus
Infratil has not only survived volatility but has thrived in it, actively shifting its focus from transport to now becoming overweight in renewable energy and digital infrastructure.
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“We want to invest in 21st century infrastructure,” Rob Morrison says.
“I think governments globally have been really slow to make that shift. They keep looking to solve 21st century problems with 20th century infrastructure.”
Not one to stay idle, Infratil acquired half of the telecommunications company One NZ (formerly Vodafone New Zealand) in 2019, and bought it outright last year in a $1.8b deal.
Its 49% stake in CDC Data Centres is now valued at close to $5b - more than 10 times its initial $400m investment in 2016 (a price it decided over the phone).
“The world’s going to go through these kind of inflections as new technologies, as things in the environment, require us to use these things more and more,” Boyes said.
“And I think what happens in these periods is the value of a business like CDC sort of gets revealed rather than new value created.
“We’re right in the heart of things.”
Despite the mega-price multiple to date, Boyes says it is not considering selling its holding - yet.
“The equation for us always, whether it’s CDC or Longroad in Australia or Tilt Renewables, which we did end up selling in the end, is where are we at on that growth curve? Do we think the market will pay us more, more for growth than there actually is in this business, that we believe anyway, that justifies removing ourselves from the sector or down waiting in the sector?
“It doesn’t feel like the right time to be doing that.”
Morrison is less definitive.
“You look at it and you go, ‘well, is this a mature business, or actually are we just at the beginning?’ I don’t think we really know that answer.
“[But] if you think you know about technology, you don’t really, and if we think we know how fast technology is going to evolve, we certainly don’t know that either. So, investing in those areas, I think there’s still an enormous upside.”
There could have been even more upside by now - Infratil could have made twice as much money on CDC, its former chief executive Marko Bogoievski let slip.
Behind those deals
“Funny story about CDC. We missed out on CDC two years earlier [at] half the price,” he told Markets with Madison.
“We were competing with a private equity firm Quadrant. They won that first deal, they held it for a very short period of time, we bought it off them a couple years later because we still loved the asset.
“We stuck to our guns.”
It was a common story for Infratil - a high conviction investment outfit that committed to a trend before finding an asset to buy.
“A lot of the hallmarks of the best in all deals have been bilateral transactions, where you’re just talking to people over time and convincing them we’re the best buyer.”
For example, Bogoievski spent almost five years of his 12-year tenure visiting Vodafone PLC in London demanding to buy its New Zealand business.
“We put prices on the table at different points.”
When Vodafone finally agreed to sell it was at market price, about equivalent to what its competitor Spark was trading at on the NZX at the time, Bogoievski says.
(Spark, formerly Telecom, was Bogoievski’s previous employer. This is what he has to say about it now: “Telecom at that time was probably the most hated entity in New Zealand, even though it was about half the stock market.”).
He was happy for Infratil to pay its half of the $3.4b deal alongside Canada’s Brookfield Asset Management, and raise $850m from investors to help fund it, because he knew the underlying value of its cell towers - which it carved off and sold for $1.7b three years later.
Although “that wasn’t plan A or B”, he reveals.
“We were surprised by that, we did not know it would be that strong.”
Infratil bought Brookfield out last year.
It’s no secret that Bogoievski led Infratil to some of its greatest investments, but what has never been spoken about so candidly before is the debates behind the deals.
“There was actual, real disagreement,” he says of the Morrison investment committee.
“Before we make a recommendation [to Infratil], we need unanimous support for an idea, which is quite hard. If we had one of our senior people who didn’t like a deal, it typically didn’t go anywhere.”
He says its initial joint purchase of One NZ was also “really challenging”.
“50-50 deals are probably the worst. Everyone has to agree on everything, things go slower, it’s like the MMP of deals.”
In hindsight, Infratil has got almost everything right, being relatively early to major investment trends.
Its investment in the wind and solar farm developer Longroad Energy in the United States started with US$100 million - it has returned 51% per annum on average to Infratil and the Super Fund since.
“Today they’re front page, top 10, developer of utility-scale renewable assets in the US, that’s incredible,” Bogoievski says.
“[But,] we could have been very wrong,” he said, reflecting on it all.
At the beginning: “Morrison and Infratil weren’t everyone’s favourite organisation. It wasn’t like everyone was cheering for us.”
It was in its earliest days when it made mistakes; investments in European airports were written off completely, with two sold for about NZ$2 each at the time.
“That was a mess,” Rob Morrison says.
Bogoievski said its acquisition of Shell’s downstream fuel assets, which later was renamed Z Energy, was its most critical, and the one he was most fond of.
“We actually didn’t have the cash to buy it.”
“We sold our position in Auckland Airport, which was a listed position. We stitched up a deal with the New Zealand Super Fund to buy the other half.
“That was ‘09. That was when the markets were crapping themselves.
“We were scrounging, you know, and looking at every empty drawer for that $200m to fund our share of it.”
The sale of Z Energy was, to date, Infratil’s second-best deal, returning almost five times its money.
“It was the most decisive and the most critical in terms of what it did for our credibility,” Bogoievski says.
The Port of Tauranga was its best, returning six times initial investment.
If it sold other assets such as Longroad or CDC today, they would likely trump them both.
Remarkable returns
Infratil always set out to make percentage returns on investments in the teens.
“It’s always been an absolute growth, total return vehicle,” Bogoievski says.
“And it worked. Thank god it worked.”
Over 30 years, Infratil has delivered an average annual return to shareholders of 18.7%, compared with the NZX Top 50 index average annual return of 7.2% before tax, according to the company’s own analysis shared with the Herald and publicly available NZX analysis.
Its market capitalisation has gone from $50 million at its 1994 initial public offering, to more than $10b today, with about 50,000 investors - 44% of them New Zealand retail investors.
It had raised $3.3b from them in total to fund its investing activities over the years.
“It’s unbelievable,” Rob Morrison says of the returns.
“[Although] it doesn’t happen by chance.
“It’s a credit to all the people that are involved in the organisation.”
There were few.
Infratil has only had three chief executives in its lifetime - Lloyd Morrison, Marko Bogoievski and now Jason Boyes - and four chairs: Kevin O’Connor, David Newman, Mark Tume and currently Alison Gerry.
“So there is a lot of consistency in there.”
Lloyd’s legacy
Rob did not plan on being part of that consistency - he initially declined his brother’s ask for him to join Infratil’s board.
“I didn’t want to be on a listed company.
“He asked me to chair Morrison if he didn’t survive and I said ‘no’. I said, ‘you’re going to survive, so let’s not even talk about it.’
“I was still working on the basis he was going to survive and he was certainly working on the basis he was going to survive.
“But he talked to me quite a few times about ‘would I take over if he died?’ And so yes, I did.”
Bogoievski’s set-up was similar. He was persuaded by Lloyd to join Infratil as chief operating officer, and not long after was “handed the keys”.
“To Morrison, to Infratil, to the whole thing,” he laughs.
“The proudest thing ... is probably taking on what Lloyd Morrison started and turning it into what it is today.
“It’s just a shame he’s not there to see the outcome.”
Watch Part 1 of the Infratil episode on Markets with Madison: Inside Infratil’s $10b AI data centre. Stay tuned for Part 2, out on Monday 7am.
Madison Reidy is host and executive producer of the NZ Herald’s investment show Markets with Madison. She joined the Herald in 2022 after working in investment, and has covered business and economics for television and radio broadcasters.
