Overtures win ear of Infratil managers

The company that runs the Infratil group has sold a 25 per cent holding to Australian heavyweight Lend Lease. Geoff Senescall finds out why.

When Infratil New Zealand was in the midst of nailing down its Wellington Airport purchase, Lloyd Morrison was in Austria listening to classical music.

But ask the man behind the Infratil group of companies about his private life and the 41-year-old's lips purse - this is not something he likes to talk about.

Yet on the topic of Wellington Airport he waxes lyrical. Pulling out a wad of overheads Mr Morrison quickly points out what a good buy the 66 per cent stake in the airport was.

Wellington Airport has the strongest passenger growth in Australasia. International aircraft landings increased 60 per cent in the second half of 1998.

And all this is before the new terminal is due to be completed - on time (June) and on budget ($116 million). Once it is completed Mr Morrison expects profits to increase significantly.

So not being there to seal the Wellington deal is no reflection of interest. In fact, it probably tells more about the faith he has in the team he has built up within his management company, Morrison and Co.

With 40 people Mr Morrison reckons it is the largest specialist infrastructure team in Australasia.

Whatever the case, Morrison and Co has managed to appear on the radar screen of the Australian-based property developer and project manager Lend Lease.

This month the $12 billion heavyweight bought a 25 per cent holding in Morrison and Co, which manages the three listed infrastructure investment companies Infratil NZ, Infratil Australia and Infratil International.

Mr Morrison says he talked to a number of parties interested in Morrison and Co but they wanted 100 per cent. The intention was not to sell out. It was to find a partner.

Lend Lease offered a good compromise, which was buying a 25 per cent stake with the ability to go to 100 per cent over five years. "This at least gave us a longer period of ownership while recognising the benefits of a larger organisation."

Just what Lend Lease paid is a closely guarded secret. Market speculation had it at $10 million.

The reason for selling a 25 per cent stake was driven as much by frustration as anything.

Infratil NZ has achieved more than a 40 per cent compound return on investment over its five years. But Mr Morrison says: "Despite investing successfully in New Zealand and Australia, we haven't had the level of market support we need to be able to fully develop opportunities.

"While we expect the assets will ultimately deliver that reputation for us, there was some benefit in talking to another organisation and working with someone in the sector.

"Lend Lease stood out as having skills and capabilities that could be easily applied to our business and the infrastructure business generally.

"They have very good project management experience, but they also understand financial services and funds management and so appreciate both the operational aspects of Morrison and Co and the management of the Infratil companies.

"Interestingly enough, their own direct infrastructure investment to date hadn't been that successful for them, given the size of their organisation.

"Lend Lease's skills will give Morrison and Co and Infratil a wider scope of deal potential to complement existing coverage in areas such as water and waste water and rail."

Indeed Lend Lease's financial might comes with an AA credit rating.

Mr Morrison set up Morrison and Co in 1988 and was joined by his business partner, Liberato Petagna, a year later. Today they own 50 per cent of the company. A further 15 per cent is owned by staff and 10 per cent owned by a South African investor, Duncan Saville.

Mr Morrison made his name in the tourism investment holding company Omni Corp (principally owned by property company Chase Corp) in the 1980s.

Mr Morrison believes that Omni should have survived the 1987 sharemarket crash as it was debt-free. But Chase was selling assets so it sold Omni to a Swiss company.

"I decided that I didn't really want to work for anyone again so I set up Morrison and Co.

"It wasn't a very smart thing to do, setting up, because New Zealand was very depressed. We first started looking at electricity in late 1989 without really having an idea of what it might lead to.

"It was only as we gained more understanding of the type of asset and the reform process that could take place that we realised this was a business we could develop some sort of leadership skills in.

"The reform of electricity had only taken place in the UK at that stage, and NZ was the next cab off the rank, so the depth of skills on a worldwide basis in terms of electricity reforms was in a development stage.

"As we got involved in electricity in the following years, we put more and more resource into it. We also started to dabble in other areas of infrastructure and started to employ people from industry to beef up our skills."

A key turning point was the sale of New Zealand Rail.

"We put a lot of effort into a consortium which didn't make the grade. While we had the highest bid price, we just couldn't get our finances together to make an unconditional bid.

"That was really disappointing because we realised it was an excellent opportunity.

"We realised at that time the institutions we acted with in the bid weren't structured to look at these opportunities. But as an adviser who had quite a good understanding of the investment opportunities and the way the industry was unfolding, we were precluded from participating because we didn't have capital at the table."

The idea of setting up an investment vehicle on behalf of institutions and smaller shareholders evolved from that. In March 1994, Infratil NZ was floated, raising a total of $50 million.

The business moved on from there across to Australia, which led to Infratil Australia being set up in 1995. It was listed in 1997. Shortly after that, Infratil International was listed.

The latter has never really got off the ground. Mr Morrison admits its future is up in the air with the pending sale of Airport Group International, in which Infratil International has a 12 per cent holding. AGI part-owns airports in Perth, Darwin and Hobart.

"If it is sold, clearly Infratil International will be cashed up."

Mr Morrison rejects suggestions that Lend Lease provided an exit strategy for him. "Who knows what will happen? But my intention is not to retire at 46."