Brookfield Infrastructure Partners LP (BIP) 2008 Q3 法說會逐字稿

Hello, this is the chorus call conference operator. Welcome to the Brookfield Infrastructure Partners conference call and webcast to present the Company's third-quarter 2008 results to unitholders. (Operator Instructions).

At this time I would like to turn the conference over to Tracey Wise, Vice President of Investor Relations. Place go ahead.

Thank you, operator, and good morning. Thank you all for joining us for Brookfield Infrastructure Partners third-quarter 2008 earnings conference call. On the call today are co-Chief Executive Officers Aaron Regent and Sam Pollack who will discuss our third-quarter operating performance and provide comments on the current market environment.

We also have John Stinebaugh, our Chief Financial Officer, who will review our financial results. Following their remarks, we would look forward to taking your questions and comments.

At this time I would like to remind you that in responding to questions and in talking about our growth initiatives, our financial and operating performance, and throughout our remarks today, we may make forward-looking statements. These statements are subject to known and unknown risks, and future results may differ materially.

For further information on known risk factors, I would encourage you to review our annual report on Form 20-S, which is available on our website.

With that, I would like to turn the call over to Aaron Regent. Aaron?

Thank you, Tracey, and good morning. The events that have taken place in the global capital markets during the past year and in particular the last few months have been unprecedented. Few organizations have been immune, including Brookfield Infrastructure. Stock market volatility has been spectacular, and liquidity in the broader credit market has been severely constrained. The ongoing fear and pessimism have led to a dramatic reduction in stock market indexes around the world with the S&P 500 decreasing more than 30% year-to-date. Our unit price has declined by and large in line with the overall market. We believe this is largely because of the broader factors at play and not due to any specific performance concerns of the partnership.

Brookfield Infrastructure remains on solid footing with excellent assets, a conservative capital structure and significant financial liquidity.

Our strategy is to acquire high-quality infrastructure assets and ensure that they are financed appropriately. In addition, we maintain significant liquidity to support our investments and fund future growth. We believe this strategy will serve us well particularly in periods of extreme market and economic uncertainty like what we're experiencing today.

The attractiveness of infrastructure assets is being highlighted in the current environment. These assets are less effected than others because they provide essential services that support the economy. Often and in many respects, they are immune to economic cycles due to their regulatory frameworks, which provide for a rate of return on invested capital.

This is the case with our Transelec and in our Ontario transmission investments. Our timber assets are also unique, although near-term cash flow has been impacted by the economic weakening. We're preserving the value of our asset base by leaving out high-quality trees on the stump to continue to grow and become more valuable. As a result, for both our transmission and timber businesses, while short-term factors will influence current perceptions of market value, the underlying fundamentals remain strong, which we believe will be recognized when markets stabilize.

We have financed our assets using a conservative improvement approach with respect to the use of debt. Our debt strategy is underpinned by the objective of employing a capital structure that achieves investment-grade credit ratings. The benefit is that this structure provides greater operating flexibility with reduced covenants. So that insurers that operate it and investment decisions are those that maximize long-term value rather than those that are more reactive and short-term focused. Our experience has been that investment-grade structures also have access to capital throughout the credit cycle.

Furthermore, we finance our assets on a nonrecourse basis and have a diversified portfolio of maturities and currently have no significant debt maturities until 2011.

Consistent with our strategy, we also have significant liquidity available to us to help ensure that we can support our investments and take advantage of new opportunities. Brookfield Infrastructure has over $600 million of liquidity comprised of cash on the balance sheet and $450 million committed credit facility and the $270 million of proceeds we anticipate receiving from the sale of our Brazilian transmission assets. As a result, Brookfield Infrastructure is well positioned. It has a solid foundation from which to grow. We believe that the downturn in the global capital markets will present exceptional opportunities that will help contribute to the growth of our business and the returns to our unitholders.

In addition, we have the added benefit of a strong sponsor. Brookfield Asset Management has expertise in executing complex transactions in this uncertain investment environment. Being able to move quickly and act decisively in response to market conditions is an added competitive advantage.

At this point I would like to turn the call over to Sam who is going to discuss a number of our current initiatives. Sam?

Thank you, Aaron, and good morning. I am going to review our major initiatives for the quarter, and I will start with our transmission business.

As we have discussed in the past, Transelec had a plan to invest $1 billion in gross capital expenditures over the next five years, including 2008, which Brookfield Infrastructure's share is approximately $180 million. It is too early to determine whether or not the current financial crisis will have a material impact on economic growth in Chile or on our customers' ability to finance their capital projects which underpin our growth plans. However, we are beginning to see an increase in potential acquisition opportunities as some industry participants look to sell assets to raise cash. Transelec shareholders are committed to investing more capital in attractive growth projects within Chile.

Furthermore, in order to partially finance these growth plans, Transelec has executed a credit facility of approximately $130 million. During the quarter Transelec also implemented the long-term hedge program that we previously disclosed in order to reduce its exposure to the Chilean peso. As a result, Transelec has been substantially converted to a US dollar asset with minimal ongoing exposure to the Chilean peso. This program was completed in August prior to the recent significant devaluation of the Chilean currency.

On September 24, 2008, Brookfield Infrastructure exercised its option to sell its minority interest in TBE. The primary purchaser of our shares will be the state-owned Brazilian electric utility, CEMIG. Upon transaction close, which we anticipate will be in January of 2009, we estimate that we will receive proceeds of approximately BRL480 million. As the markets become more volatile, we extended our foreign currency hedge in connection with these anticipated proceeds to January 31, 2009 to provide additional protection. After-tax proceeds are anticipated to be approximately $270 million, of which $27 million has already been received from a realized hedge gain.

Now turning to our timber business, this week Longview is expected to complete the add-on acquisition of a 67,000 acre tree farm in Washington state for $163 million. The property is in close proximity to Longview's existing asset base and will benefit from efficiencies associated with integration into Longview's operations. Concurrently Longview will repay its outstanding bridge loan, whose principal amount was $250 million as of the end of the third quarter. In order to fund these amounts, Longview will issue $70 million of long-term debt and finance that balance with new equity.

Brookfield Infrastructure will invest $103 million directly and indirectly into Longview in order to maintain its interest at the 30% level.

As we disclosed last quarter, we're in the process of acquiring the equity interest in three [3P] projects -- Royal Melbourne Showgrounds and Long Bay Forensic and Prison Hospitals in Australia and the Peterborough Hospital in the United Kingdom from Brookfield Multiplex. The purchase price will be determined at transaction close based upon prevailing exchange rates. Based on current exchange rates, we estimate the purchase price to be approximately $20 million.

During the quarter we made significant progress finalizing the definitive agreements and negotiating the consent to transfer. Since this is a related party transaction, the acquisition is subject to obtaining a satisfactory [Ferris] opinion from an independent financial advisor. We anticipate that closing will occur this month.

The Board of Directors has authorized a unit repurchase program for the repurchase of up to $25 million worth of units of the partnership. We believe that from time to time the market price of the partnership's units may not believe reflect the underlying value of the partnership's business and its future business prospects.

In such circumstances the outstanding units may represent a more attractive investment for the partnership in comparison with other alternatives. The bid will provide us with the flexibility to repurchase our units over the next 12 months in the event such circumstances persist.

Now I would like to turn it over to John Stinebaugh to review our financial results.

Thanks, Sam. I'm going to spend a few minutes walking through our financial results now. In our supplemental information, which is available on our website, we have provided our third-quarter 2008 results. We have also provided pro forma results for the three and nine-month periods pending September 30, 2008, as well as 2007.

For the prior period, our pro forma results assume that all of our operations were held by Brookfield Infrastructure on the same basis as in the current period for comparability purposes.

I will focus on our pro forma proportionate results, which are calculated based upon Brookfield Infrastructure's ownership percentage for all of our businesses other than TBE, which is accounted for on a cost basis. Furthermore, I will focus on ANOI, which is net income plus depreciation and amortization, deferred taxes and other items. We highlight this metric because we believe it's a good proxy for cash flow from our operations, which is the key driver of our business.

In the third quarter of 2008, ANOI was $13.1 million for Brookfield Infrastructure. For the quarter our transmission businesses recorded results consistent with last year after adjusting for non-recurring revenue and normalizing the TBE dividend. For the three months ended September 30, 2008, Transelec's ANOI was $8.5 billion compared with $6 million in the prior year. As with the prior two quarters, Transelec's results reflect non-recurring revenues of $1.8 million as a result of its recently implemented transmission study.

Adjusting for non-recurring revenue, Transelec's ANOI increased relative to the prior year by 12% primarily as a result of the ongoing increase in revenues due to the transmission study, as well as inflation indexation of revenues. After adjusting for non-recurring revenues, operating margins at Transelec were 81%, which is in line with historical levels.

For the three months ended September 30, 2008, Ontario transmission's ANOI was $3.3 million compared with $4.5 million from the prior year. Revenues from Ontario transmission were essentially flat compared to the prior year. Operating and maintenance expenses increased due to personnel costs associated with Ontario transmission's development program, which we intend to apply for cost recovery in our upcoming rate case.

In 2008 dividends received from TBE decreased to $5.3 million for the quarter compared to $10.3 million in 2007. For the full-year 2008, we expect dividends from TBE to be in line with last year.

Our timber segment generated $1.6 million of ANOI for the three-month period ended September 2008 compared to $2.2 million in the prior year. Results reflect the impacts of reduced sales volume and lower pricing on sawlogs, offset to a degree by an increase in export sales.

In our Canadian operations, sales volume decreased by 8% in the third quarter of '08 compared with the prior year as we reduced sales of second-growth Douglas-fir sawlogs due to market pricing. The quarter also reflects an increased percentage of appearance grade logs in our product mix.

Due to the higher prices net of transportation costs, we also continued our efforts to increase exports to the Asian market with 35% of sales in the quarter shipped offshore, up from 27% in the comparable period last year. Costs per unit increased 2% to $75 per meter cubed as a result of our product mix and to a lesser extent higher fuel costs. Overall our operating margins declined to 15% for the quarter versus 21% in the prior year.

At our US timber operations, sales volume increased 5% in the third quarter of 2008 over the prior year, principally due to improved harvesting conditions. Similar to our Canadian operations, we're focused on increasing our exports. In the quarter volume shipped to Asia increased to 22% compared to 13% in the prior year. Costs per unit increased by 11% to $54 per cubic meter, primarily as a result of higher fuel prices and increased transportation costs as we increase the scope of our market area.

Overall margins decreased to 29% versus 43% in the prior year. Based on our current assessment of market conditions, we believe performance of our timber business in the fourth quarter will likely be similar to this quarter. Furthermore, we do not see any significant recovery in logs market until sometime in 2010.

However, as demand recovers, we believe our timber business will benefit from very positive fundamentals on the supply-side, which should yield a period of price increases well in excess of inflation. We expect to be in a position to capture this value by ramping up our harvest levels in both of our operations.

This concludes my remarks. Now I will turn it over to Aaron to walk through our outlook.

Thanks, John. The outlook for the world's economies and capital markets remains uncertain. We believe, however, that with the quality of our assets, the conservative financing structure that we have employed and our current liquidity, we're well-positioned. We expect our regulated transmission business to continue to deliver predictable and steady results. The results from our timber business will be more uncertain. But given our operating flexibility, we believe we can manage this business to create long-term value.

The distress in the financial markets is creating a number of attractive opportunities. As we grow our asset base, our objective is to build a portfolio that is balanced between utilities, transportation and timber operations. With our strong liquidity position and the sponsorship of Brookfield, we're optimistic about our ability to acquire additional assets.

As we proceed, caution will be necessary, but we believe that we're in a unique period of time when exceptional value can be created, and we look forward to updating you on our progress in the months ahead.

So that concludes our formal remarks. Operator, we would be happy to open up the call to questions.

(Operator Instructions). Brendan Maiorana, Wachovia.

The first question is I guess with respect to the share buyback program and then also the outlook in terms of increasing acquisitions. If I just think about those two, they seem to be somewhat competing where the share buyback would be a reduction of your capital base. And then I think the acquisitions, which you mentioned, were becoming more compelling at some point. At some point I think wouldn't you require an equity raise, or you would seek to put in equity which would be an expansion of your capital base. So can you just help me reconcile those two competing items?

Why don't I start and then open up and get Sam and John to comment as well. I think that the first thing is with the share buyback, what we're doing is establishing the place to the extent that there are opportunities to buy at exceptional value. We're in a position to do that. So I think it does give us enhanced flexibility to deploy capital away, which ultimately creates unitholder value.

But you're right. It is a capital allocation decision, and that is one option we have. But, in addition, we do have been objective of continuing to grow Brookfield Infrastructure and to diversify our asset base and are looking to do that. And we believe there could be some very attractive opportunities to deploy capital along that objective, which could also create significant unitholder value.

So I think ultimately I don't really see them as being competing interests. The main objective is how we can create the most value for unitholders. And so we're going to look at the options we have to deploy capital to basically achieve that objective.

And maybe just the other thing I would add is, our putting in the share buyback program really was in response to the volatility we saw in the marketplace over the last month or two where our unit price as share price for many other companies really gyrated around and in our case we did not have the ability to take advantage of that when the share price dropped down to extremely low levels. And now we just have that flexibility.

Are there opportunities out there -- is there enough distress in the market where you would see external acquisition opportunities where the return potential would be greater than the return potential of your own units?

I think it depends on -- I think there potentially could be. We are in a market right now where there are I think a number of companies or assets that have been perhaps overly leveraged. And, as we're in an environment for the next two years of deleveraging, it could mean a number of interesting assets comes on the market in a relatively short period of time and in a distressed way.

And so because of that, there could be some interesting opportunities where we can actually acquire assets at exceptional rates of return. And I think from a strategic perspective, we're trying to position ourselves to make sure that we are able to react quickly to those situations.

So to answer your question, it is hard to predict, but there are circumstances out there where there are assets that are trading for exceptional value. Whether a transaction could actually take place are not is probably a separate sort of analysis.

Okay. Thank you. In terms of the timber, you guys are deferring harvest levels because pricing is weak in the North American markets, which is understandable. The recovery is -- you mentioned sometime in 2010, possibly thereafter. I think about a 12% required rate of return that you guys put out there on timber.

What is the price increase that I need to get, or that we need to get, in order to achieve a 12% return on these deferred harvest levels over the next couple of years if we're not going to get a price improvement until 2010?

There are a number of factors that you probably need to put into your model, not just pricing, but also how you would forecast your harvest levels at that time as well.

As you know, what is great about our business is that the ability to undercut during a period of weak prices but also overcut during a period of exceptional prices. So you will have to flex that as well.

With respect to pricing, I think it is fair to say that you should start by going back to 2006 pricing levels and then probably for a period of two to three years assume pricing growth above those levels of at least 5% per year and then thereafter probably assuming a more normalized inflationary growth level.

Okay. Thank you. That is very helpful. And then in speaking with one of your timber folks, I understand that or I heard that the discount rate that was put in both the prospectus and I think the 20-S on the HBU land was stated around 7% or 7.5%. I think the actual discount rate that was used for the $300 million number was around 16% or higher. Can you just confirm that publicly, please?

That is correct. For the HBU opportunities, which have got greater risks than the core timber business, the higher discount rate was used in that appraisal. It was done, and the 16% number is correct.

Thanks. And then just lastly, in terms of the dividend this quarter, ANOI less CapEx or AFFO, was below the dividend rate at least by my calculations. I think it was around $0.24 versus your (inaudible) asset dividend.

Given that timber is expected to be deferred, harvest levels are expected to be deferred, it seems like we can be at this rate for somewhat of an extended period of time. When you think about your capital plan, are you still comfortable with the dividend level and being able to retain enough cash to build out your organic growth prospects over the next few years?

As we look forward, first of all, regarding the dividend, we don't anticipate raising the dividend level until one of a couple of things happen. So the first would be a recovery of log prices, which will increase cash flow from that segment of our business or if there's something else that we do to enhance the FFO or the ANOI from the business that would support the higher dividend level.

With respect to maintaining the existing dividend, we believe we have got sufficient liquidity, not only to fund the growth initiatives we have got in the current portfolio but to satisfy the dividend payments.

Do you feel that you can match fund your growth CapEx through so taking the liquidity that you have got through the TBE monetization and the credit facility, but on your existing asset base that you can match-fund to your growth expectations from both a -- from a one-to-one leverage ratio with the internal cash that you will -- the internal cash generation less the dividend? Or should we be thinking about some of these liquidity sources, either TBE or the credit facility, of helping fund the growth initiatives at Transelec?

One of the things that we discussed in our materials as we put in place the $130 million CapEx revolver at Transelec, and that is to help supplement the internal cash flow to satisfy the investment program that we have got down there. And we think that the $130 million revolver can last us for a couple of years, and then what we plan to do is opportunistically refinance that in the Capital Markets to free it up to provide more powder for us.

So that plus another thing we are considering is putting in place a credit facility within Ontario transmission as well. So that will basically supplement the corporate liquidity that we have got.

But I think if I could add, that if you look at our business on a normalized basis, that we have more than enough cash flow to support not only the dividend but for the most part our organic growth profile. As John said, we also have access to debt, and we have things like the TBE process that bridge us in the interim.

Andrew Kuske, Credit Suisse.

Just a question as it relates to the acquisition of some more timberland sites because the first question is, is that the Hampton package that was being shopped in the Northwest?

And then just as it relates to that, how do you reconcile the delta between the public market value and the capital markets for timberlands and then just some of the private deals that we have seen?

Maybe I will start off, and then Aaron and John can jump in as well.

I guess the first thing, we cannot confirm that that is the Hampton package. As you -- I'm sure you could figure it out anyway from the amount of acreage.

But when we look at values both from a public market basis and private market basis, sometimes it can be misleading just to compare the two.

I think with respect to public market valuation, first off, many of the companies you're looking at have industrial assets mixed into them, which somewhat clouds the valuation process for those companies. And so it is not a pure apples-to-apples comparison.

Having said all that, I think it is fair to conclude that today the public market REITs and public market timber companies are trading at very attractive valuations as compared to some of the more recent private market transactions. But when looking at that, you also have to take out that you don't have control of the asset. There is a lot of different debt considerations to take into account in some of the public companies versus some of the private situations, and you do not have a full picture on the site class distribution.

We think that in today's market and the transaction we just recently did, we did transact in a very good long-term value. I think it is an excellent asset, and we think it is one we're going to get great returns.

We think to the extent that some of those public companies continue to trade at the levels they are today, there will be people who come along to try and take them private. But if they do, you will see them transact at much higher prices than they are trading at.

And then just from a corporate perspective, when you're thinking about the distribution you're paying from the BIP level to unitholders and then when you look at the current harvest rates for most of the timberlands that exist in North America being generally weak and not necessarily cash generative in a positive fashion, how do you reconcile that from an overall corporate standpoint?

Well, what we're trying to do is, as we mentioned, we think we've got sufficient liquidity in order to pay the dividend. So that being the case, the next thing we're focusing on is maximizing the value of the business. So in this environment with prices that we think we can realize for the Douglas-fir second growth inventory that we have got, we think that by deferring some of that we can increase overall value to unitholders. So that is kind of how we think about it.

And then if I may, just one final question. Just as it relates to the expectation on the Russian timber [levee] going to 80% on January 1, are you getting increasing indications from players in Asia wanting to buy logs?

Andrew, it's a great question because the one thing that is massed in all this is what is happening on the Asian market. We wish we could sell even more product out there because -- and when I speak of Asian, I'm primarily speaking in our case about the Japanese market.

It has been a very strong market. We have also been bolstered by the fact that we have been able to increase our availability of both freighters, and there has been reduced fuel cost. But we have actually increased our prices to the Japanese market five times since early August, and our margins have increased substantially as a result. And so that market is doing very well, and it is one that we will expect to continue to perform well over the coming year.

Let me add one point, Andrew. It is John. One of the other things the Hampton acquisition will enable us to do is, first of all, within our Northern operations (technical difficulty)-- integration of Hampton into our operations will enable us to export more volumes out of our Northern operation and take advantage of dynamics that Sam just mentioned.

The last thing I would add, too, is that one of the other benefits of the Russian export tax and the reduced amount of Russian logs on the market is it is also opening up new log markets for us in Asia that were previously not available to us. The one area that has been a new market for us is the Japanese peeler market, which we did not sell to a couple of years ago.

Emily Foo, BMO Capital Markets.

Just a couple of questions. I see that for the past three quarters now that Transelec has had this retroactive revenue that was nonrecurring, and it has been for the past three quarters. I was just wondering if you know if this is going to occur again for the next couple of quarters?

We believe that it has been fully assessed at this point in time. What that referred to is, when the transmission study was put in place, it was applied beginning in 2004. And then based on our various customer classes, they were assessed bills, and we have been receiving payments for those past periods.

So it was the heaviest in the previous two quarters, but we did have an amount this quarter. But we think that that has been largely come in the door at this point. So we don't expect material nonrecurring revenue next quarter.

Okay. I see. And then with respect to TBE, so can we expect dividends in Q4 and also Q1 of next year then?

It largely is going to be a function of when the sale closes. We expect it is the dividend in Q4 we will receive. However, whether we receive dividends in Q1 is going to be a function of when the sale closes, and we're anticipating it is going to be in January of '09. So I do not anticipate there is going to be material dividends from TBE in '09.

And all of the estimated $270 million will be expected at close then, right?

With one exception, as we disclosed. When we ended up extending our hedging, our hedge, we realized $27 million of FX gains associated with that, which came into the Company in this quarter.

Michael Goldberg, Desjardins Securities.

Based on the $270 million proceeds from TBE, is there a gain, and if so, how much is it?

There will be a gain, and probably the easiest way to think about it is, when we ended up closing the spinoff, the book value of TBE in US dollars was $103 million. So the gain should basically be the proceeds that we receive over the $193 million book value.

So roughly a little over $70 million?

Yes, that is right.

Robert Kwan, RBC Capital Markets.

Just to follow-up on the TBE proceeds, will the $270 million less the $27 million be reduced by Q4 dividends?

Yes, it would be.

Okay. You also made your some comments on your expectations for future harvest levels, and I just wanted to make sure that has not changed. There was some talk about 40% above historical levels.

And then previously you have talked about being 20% above the long run sustainable yield. Is it still the same number, or are you looking to bump it up to 2 million cubic meters a year?

Let me start off answering part of that question, and then Sam or Aaron may jump in, Robert.

The 40% above historical levels is, if you go back to the historical period of time before Brookfield Infrastructure were Brookfield and Longview. So if you go back and take a look at the previous owners' harvest levels, then that is where that 40% number comes from.

What was the second part of your question?

Moreso I think you talked about the long-run sustainable yield being about 1.4 million cubic meters and that you were going to be 20% above over the long run. So I'm just trying to reconcile the 20% above versus the 40%. Is it the same number at roughly 1.7?

I don't think so. I think what we were referring to is, by shifting our harvest rotation to a 45 to 50-year harvest rotation, then once we end up migrating to that level, so we will have increased harvest as we end up harvesting the surplus merchantable inventory. But when we get down to the new 45 to 50-year rotation, I think what we were trying to say is that the sustainable yield will be approximately 10% above what it was historically.

Okay. I guess maybe just can you wrap some numbers around where you are seeing the long-run sustainable yield and then what the step-up number is in millions of cubic meters?

Robert, we will get back to you with what the exact -- or some more color on that.

Sure. That is great. And this is my last question. On the peso hedges that you have instituted, is there any more color you can just give with respect to the actual term and the nature of how you have hedged those cash flows and at what levels?

In terms of the term, it is on a match maturity basis. So we basically have hedged out -- we had a Yankee bond at the Transelec level, and we converted that into pesos. And then the holding company debt that we have got there, we converted into pesos as well. So the hedges basically match those maturities.

And in terms of the levels, maybe I will just give you a sense of the environment in which we executed it. We executed in early August, so reflective of market at that point in time.

Okay. So essentially you have not used derivative instruments. It is just that you swapped the debt into pesos? Is that the way to think about it?

It is derivative instruments in the sense that it's basically crosscurrency interest rate swaps, and then we hedged up the balance of our equity.

Great. Thank you.

Just to give you maybe a roadmap for the sustainable yield, in our prospectus we have got the current sustainable yield. So if you basically increase that by 10%, that will give you a sense as to the sustainable yield once we migrate to the 45 to 50-year rotation level.

(Operator Instructions). Michael Smith, National Bank Financial.

In your letter to shareholders in your prepared remarks, you said the transmission business, you said it was too early to determine whether or not the current financial crisis will have a material impact on economic growth in Chile or in your customers' ability to finance their capital projects, which underpins your growth plans. I'm just wondering if you could talk about what type of plans are contingent on that growth and if you could give us any more color on that in general?

I can start off, and Aaron and Sam will jump in.

But if you take a look at the growth projects within Transelec, there is a number of different types. There are upgrades to systems, and then there are expansions to the system. And the expansions to the system are driven by a large degree new generation facilities that are built that need to be connected and then also to a lesser extent by new compromises that are developed that need electricity that also connect to the grid.

So our growth plan is a function of those underlying projects moving forward, and I think all we were trying to say is that we truly are in unprecedented times right now from an economic standpoint. We don't really have a great sense at this point as to what level of impact these times are going to have on the Chilean economy.

So that being the case, we believe some caution is appropriate in terms of what we expect for our CapEx plan over the next five years.

Great. Thank you. Just one last question. In your outlook you talked about you are being optimistic about your ability to acquire additional assets. Are you starting to see some opportunistic acquisition opportunities now, or do you have a pipeline, or is it still too early? I mean obviously you bought -- you did a little add-on acquisition with Longview, but I am just wondering about the rest of your pipeline.

I would say that in the normal course, the way we approach corporate development initiatives is that we typically identify a number of opportunities that fit within our investment thesis and we think would be complementary to the assets we have in Brookfield.

So we have what we would call our watchlist where we have done the analysis, and we're looking for a basic catalyst to move them from a watchlist into a more active process, if you will.

So I would say that that is typically how we have kind of approached the business. But in addition to that, what we're seeing in this environment is a number of situations where, as I mentioned earlier, more of distress-like situations where principally as a result of the need to deleverage that there are assets that could and are coming to market in an unpredicted way, if you will, if you look back maybe six or so months ago.

So I think that when we look at that backdrop, plus when we look at the fact that liquidity is significantly reduced compared to where we were a few years ago, that all bodes well for us given that we do have liquidity and we do have -- and we are positioned I think to act quickly on certain situations.

So candidly it is really hard to predict how this may unfold, but we're more optimistic now, particularly looking out the next couple of years compared to where we were, say, two years ago.

Brendan Maiorana, Wachovia.

Just one follow-up, if I may, just kind of a more global question. It has been about 10 months since you guys spun out, and I think the original expectations were that this was going to be -- one BIP was going to be one vehicle with which to grow Brookfield's overall infrastructure platform. It has been a pretty remarkable 10 months, Aaron, as you mentioned in your opening remarks, and it strikes me that some of the acquisition vehicles that are out there on the marketplace have come under a lot of pressure whether it be from relatively high dividend payouts or OPEC management agreements. Those are issues that are not really impacting you guys or not the nonissues that are pressuring your stock necessarily. But it does seem that there is a little bit less receptiveness on investors' parts for these types of vehicles.

I'm just wondering -- that is my perspective as an outsider. I'm just wondering from your perspective as insiders and your discussions with investors, how do you see BIP as kind of an experiment and a vehicle to grow the infrastructure platform? How do you see it now relative to maybe your expectations 10 or 12 months ago?

That is an excellent question. I think I would make a few comments. First of all, we think we're different from a number of the other listed units that are out there or similar structures, if you will. A number of different things. Our strategy, the way we capitalized ourselves, the quality of the assets, and the governance process that we have in place. So we think we're different from those other entities. And I think, as you pointed out, that is probably being reflected in why we have performed better than they have over the last little while.

But it has been a very difficult 10 months to draw any conclusions in that we have been going through some very unusual times where there has been just a broad variety of external factors that are at play that are affecting not just Brookfield Infrastructure Partners but companies of all stripes.

So I think that at this point, it is very difficult to draw any conclusions out of what has happened over the last 10 months. I think from our perspective we have, and you know us, we have long-term horizons. And so we think that the way we have established Brookfield Infrastructure Partners was -- is ensuring that we put it on a sound footing and gives us a sound platform from which to grow, and we continue to remain optimistic about our ability to do that.

If we are sitting here five years from now and we have not made much progress, well, then obviously the conclusion might be different.

Cherilyn Radbourne, Scotia Capital.

I just had one question with respect to some of the distressed acquisition opportunities that you are starting to see. And what I'm curious to know is whether those are the result of industrial owners of infrastructure assets who now find themselves in need of cash or whether, in fact, you are starting to see some of the transactions that took place over the last one to three years fall apart because of misfinancing?

I think we anticipate that it is going to be a bit of both. We have seen a number of corporates, for example, who have been very aggressive in the last number of years in terms of growing their business and have used leverage to accomplish that. And so there is a deleveraging taking place. And so there are assets that are available in the marketplace right now as a result of that.

I would say in terms of transactions that have taken place on the private side in the last two or so years, there is less visibility on that. And so I would say we have not seen as many opportunities. But given our sense about how some of these transactions have come together and the change in the credit markets, we anticipate there is going to have to be a recapitalization of some of those assets.

Maybe just to add onto that, what we are seeing are companies that have leveraged themselves too much over the last couple of years are looking to sell assets to delever, and what we have not seen yet, although -- and it's probably close to the fact that infrastructure assets tend to perform well even during difficult times, we have not seen individual assets breach their covenants and either go into some sort of creditor protection or for sale by lenders. Although it is possible that with some of the leverage that others took on, that those situations might arise over the coming years.

Okay. And one of the things that your counterparts at Brookfield Asset Management have talked about is that the greater challenge in this environment is not, in fact, going to be locating opportunities because those are expected to be plentiful but really allocating capital to the right opportunities and, in effect, I guess not acting too early. You use the word "yet" a lot of times in your response about acquisition opportunities. So just in a big picture sense, how are you thinking about that at the Brookfield Infrastructure Partners level?

Well, you know, the way we view the acquisition environment is exactly the same that [Van] would in the sense that we think this will play out for some time still. We need to -- we don't have a limited amount of capital to invest in opportunities, and so we are looking for the ones that we think will provide us the best risk-adjusted returns.

So obviously we think this will be an environment where we will be able to earn better returns than we have been able to obtain in the last number of years. So we also think we will be able to do it on a basis where we will be able to finance acquisitions going forward on a very comfortable, prudent basis.

And if I could add, I think that we're very specific in some respects in terms of the types of assets that we're targeting, and that we're not looking just to acquire any quality of infrastructure asset. We really are looking to acquire high-quality businesses, and that is kind of fundamental to our strategy.

So I think right now there are lots of assets on the fringes that you could acquire if you wanted to. But they are just not in our sights because they do not meet our quality test, if you will. So I think in that respect we are being very selective in terms of the types of situation we're going to mobilize and focus on.

There are now no further questions. I will turn the conference back over for any closing comments.

Well, I guess this concludes our third-quarter call. On behalf of the management team, I would like to thank everybody for joining us today and for your questions. As we said, we look forward to updating you in the fourth quarter with the progress that we're making.

So with that, we will end the call.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect your phone lines. Thank you for participating, and have a pleasant day.