Macquarie Bank to establish European Diversified Infrastructure Fund: Seed asset acquired - leading UK utility

01 October 2003

LONDON - Macquarie Bank today announced a major step in the establishment of a Macquarie European Infrastructure Fund, a new wholesale vehicle that will target investments in infrastructure and related assets located in European OECD countries. Macquarie Bank has acquired UK utility South East Water plc for £386 million as a seed asset for the Fund.

The Macquarie European Infrastructure Fund will aim to deliver sustainable cash yields and moderate capital growth from investment in a diversified portfolio of quality infrastructure assets, potentially including electricity and gas transmission and distribution networks, water and sewerage companies, toll roads, rail and related infrastructure, airports and communications infrastructure.

The Fund will target investments that provide essential services to the community, have a strategic competitive advantage and offer sustainable and predictable cashflows. It will appeal to pension funds and other institutional investors seeking long-term stable returns that match long-dated liability profiles.

According to Mr Jim Craig, Managing Director of the Macquarie European Infrastructure Fund, infrastructure offers attractive long-term investment features. "Infrastructure assets display unique characteristics. Their essential and long-term nature, combined with strong competitive position, leads to stable and predictable consumer demand resulting in cashflows that can be more reliably predicted than those from other asset classes. This stability in operating cashflows can reduce the overall volatility of investor returns," he said.

"The European infrastructure sector is generating a strong and growing pipeline of attractive opportunities. The Macquarie European Infrastructure Fund will benefit from Macquarie's position as a global leader in the infrastructure finance sector, which provides us with a unique ability to access outstanding investment opportunities."

On completion of initial equity raising, the Fund's first investment will be South East Water, a regulated water supply company located in the South East of England. Macquarie Bank today announced it has acquired 100 per cent of the equity of South East Water plc and its affiliated businesses for £386 million. Subject to completion of the necessary regulatory processes, South East Water will be transferred from Macquarie Bank to the Macquarie European Infrastructure Fund.

South East Water has been purchased from SAUR UK Limited, a subsidiary of the French Bouygues Group. Macquarie and Bouygues are joint venture partners in a number of projects around the world.

"Macquarie's relationship with Bouygues and the certainty of funding that we were able to provide allowed us to complete this transaction in a short timeframe," Mr Craig said.

"South East Water provides essential services to a growing community. It offers a stable investment with high quality, regulated cashflows. Its essential nature means that it has limited exposure to demand and pricing risk and limited dependence on the economic cycle, matching the Fund's investment criteria," he said.

Managing Director of South East Water Mrs Margaret Devlin said, "We are delighted to have formed this relationship with Macquarie, given its understanding of businesses such as South East Water and its long-term commitment to essential infrastructure assets."

Mr Craig added, "Macquarie looks forward to working with Mrs Devlin and her team in continuing to provide South East Water's customers with a high level of service."

South East Water had a regulatory asset base of £435 million as at 31 March 2003. Macquarie Bank's acquisition of South East Water was undertaken at a multiple of 8.7 times historical earnings before depreciation, amortisation, interest and taxation (EBITDA) and implies a value for South East Water's regulated business of 93 per cent of the regulatory asset base at acquisition. The purchase price has been funded by a combination of debt and equity with Macquarie contributing £111 million of equity.

The Macquarie European Infrastructure Fund will be established once it has finalised commitments from equity investors. It is anticipated that the first close of the Fund will occur within six to nine months.

Macquarie expects to make further announcements about the Macquarie European Infrastructure Fund in the near future.

NOTES TO EDITORS:

The Macquarie Bank Group
The Macquarie Bank Group provides specialist investment, advisory and financial services in select markets around the world, with over 5000 people in 18 countries. The Group consists of Macquarie Bank Limited, the leading Australian investment bank, and its worldwide affiliates. Macquarie Bank has a market capitalisation of approx €4 billion.

Macquarie is a global leader in infrastructure acquisition, funding and management, and manages almost €9.5 billion of funds invested in infrastructure assets and businesses around the world including toll roads, airports, communications, water, rail and power assets.

Macquarie's European regional base is London where it has over 200 people, with additional offices in Dublin, Frankfurt, Geneva, Munich and Vienna.

Macquarie Bank Limited is authorised and regulated by the Financial Services Authority.

South East Water
South East Water is the second largest of 12 water only companies in the UK and supplies 400 million litres of water per day to approximately 1.5 million people in the South East of England, in a catchment area that covers some 3607km2 of Kent Sussex, Surrey, Hampshire and Berkshire.

South East Water services a prosperous catchment area with 2002 GDP of £140 billion, the second largest regional economy in the UK, marginally behind London. The region accounts for almost 16 per cent of the UK's GDP and 15 per cent of the total business base. Over the next five years the population of the region is expected to grow at a rate of 0.9 per cent per annum, faster than the UK average of 0.7 per cent per annum.

Affiliated businesses acquired by Macquarie include Pipeway Limited, Dynamco Limited and Optimum Information Systems Limited. Together these businesses primarily service South East Water and undertake water mains renovation, new works, commercial services and IT functions. South East Water and its affiliated businesses have approximately 630 employees.

For further information please contact:

Jim Craig
Managing Director
Macquarie European Infrastructure Fund
Tel: +44 (0)20 7065 2016

Alison Jefferis
Corporate Communications
Macquarie Bank
Tel: +44 (0)20 7065 2335
Mob: +44 (0)79 1938 2958

Andrew Waterworth
Financial Dynamics
Tel: +44 (0)20 7269 7127
Mob: +44 (0) 7771 740484