Brookfield Infrastructure Partners LP (BIP) 2013 Q1 法說會逐字稿

Welcome to the Brookfield Infrastructure Partners conference call and webcast to present the Company's 2013 first quarter results to unit holders. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. (Operator Instructions)

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

Thank you, operator, and good morning. Thank you all for joining us for Brookfield Infrastructure Partners' first quarter 2013 earnings conference call. On the call today is John Stinebaugh, our Chief Financial Officer who will review our financial results, and Chief Executive Officer Sam Pollock, who will discuss highlights for the quarter, provide comments on our strategy and the outlook for our business. Following their remarks, we 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 and our financial and operating performance, 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-F, which is available on our website.

With that, I would like to turn the call over to John Stinebaugh. John?

Thanks, Tracey. I'll start by spending a few minutes walking through our results. In my remarks, I'll focus on funds from operations or FFO. We highlight this metric because we believe it's a proxy for cash flow from operations. I'll also focus on AFFO yield, which is equal to our FFO less maintenance cap ex divided by invested capital. This is a measure of how effectively we deploy our capital.

In the first quarter of 2013, we posted strong results that began to fully reflect the investments that we made over the past two years. Our FFO increased by 48% to $160 million, driven by our Australian Railroad expansion project that was commissioned during the past year as well as acquisitions in our Utilities and Transport platforms that closed in the fourth quarter of 2012. Our FFO per unit was $0.80, a 38% increase over the prior year as all the investments funded by our August 2012 unit offering meaningfully contributed to cash flow.

Including the 15% increase in our distribution in February of 2013, our payout ratio was 59%, below our target range of 60% to 70%.

During the quarter, our Utilities platform generated FFO of $92 million compared with $65 million in the first quarter of 2012. The year-over-year increase in FFO was primarily attributable to the recently completed merger and recapitalization of our UK regulated distribution business, which doubled its size, and the increase in ownership in our Chilean electricity transmission system. Excluding these investments, results from our Utilities business increased due to inflation indexation and additions to the rate base of our existing operations.

Our Utilities platform generated an AFFO yield of 14%, which is very attractive in light of the [lowest] profile of these businesses.

Our Transport platform generated FFO of $57 million in the first quarter compared to $38 million in the first quarter of 2012. The significant increase in FFO was driven by the commissioning of our Australian Railroad expansion program as well as the contribution from the South American toll roads that we acquired in the fourth quarter of 2012.

For the quarter, FFO from our Ports business declined nominally as a result of lower volumes at our bulk and container terminals due to the recession in much of Europe. Overall, our Transport platform produced an AFFO yield of 13%. We expect FFO from this platform to increase over the balance of the year as our largest railroad customer commenced service on the last of its four contracted train paths in the beginning of March of this year.

And our Energy business generated FFO of $22 million in the first quarter compared to $24 million in the first quarter of last year despite investments of equity to deleverage our North American natural gas transmission system and an acquisition of our First District Energy asset. As a result of weak market fundamentals, we expect that our natural gas transmission system will continue to face headwinds in the near term. However, we're confident in its longer term outlook due to supply growth from emerging shale basins served by our system, as well as increased demand from gas-fired power generation as the U.S. economy recovers. Overall, this platform produced an AFFO yield of 7%, which is below long-term expectations.

Our Timber business had a strong first quarter, reporting FFO of $11 million versus $6 million in the prior year. Excluding the impact of the divestiture of a portion of our Canadian timber operation, our results were more than double the prior year, driven by price increases in both the domestic and export markets.

In the first quarter, the recovery of the U.S. housing market continued to gain momentum with seasonally adjusted annualized U.S. housing starts reaching over 1 million in March, 47% above prior year levels. In order to take advantage of such conditions, we leveraged the flexibility of our operations to ramp up production in the winter months when many of our competitors were unable to increase their harvest levels. For the quarter, our log exports were 45% of total sales, consistent with the prior year, and our AFFO yield for this platform was 10%.

I'll now touch on some of our financing initiatives. During the last few months, we completed several refinancings at our operations, capitalizing on the opportunity to issue long-term debt in a historically low interest rate environment. At quarter and, our Australian Railroad raised $1.2 billion of permanent financing comprised of a $500 million drawn term loan and $700 million of notes issued in the U.S. private placement market. These financings, which have a triple-B rating from S&P, have an average Australian equivalent coupon of 6.2% and an average maturity of seven years. Upon closing, we repatriated $300 million of capital for use in future investments.

Subsequent to quarter and, we also completed the refinancing of a bridge facility at our UK regulated distribution business. We raised approximately £600 million of U.S. private placement debt with an average term of over 13 years and an average GBP equivalent rate of 4.4%. The notes have a rating of BAA2 from Moody's.

In April, we also closed an approximate 40 million financing at our Ontario transmission operations. Over the past several years, we have equity funded the growth of its rate base and this business is now able to support more debt while maintaining its investment grade metrics. The proceeds of the financing will be repatriated for use in future investments.

I will now turn the call over to Sam to walk through our growth strategy and outlook for the business.

Thanks, John, and good morning, everyone. Since year end, we've been very focused on our asset recycling and capital raising initiatives. As John mentioned, we recently closed two asset level debt financings that resulted in repatriation of approximately $350 million. We also sold a non-core asset to you to Peterborough Hospital Public Private Partnership for $40 million. With many of our initiatives now complete, we are focused on advancing growth opportunities throughout our business.

One of our current organic growth projects is the construction of our Texas transmission system, which is currently at its peak level of activity. As of now, we have set 86% of the systems foundations and 56% of the towers have been erected. Transmission wire has been strung over 76 miles of the system's 376-mile path and 30% of the total cable is now in place. All three of the substations for the first two line segments have been assembled and are undergoing final testing. This project is expected to be commissioned in the third quarter.

Another example of organic growth is in our Energy segment and our North American District Energy business. In December, we executed a long-term contract with a datacenter for volumes that exceeded our underwriting assumptions. Datacenter customers are particularly attractive, as they require year-round cooling to the heat that is produced by their equipment and they have loads that are four times the typical weather-sensitive cooling customers.

We expect the level of organic growth within our business will accelerate with the global economic recovery that is underway and we believe that these organic growth initiatives will support our 3% to 7% target distribution growth. We also believe that we can meaningfully add to our growth through acquisitions.

Our business development teams have been actively working to originate new investment opportunities and we believe that our deal pipeline is currently as attractive as 2012. Last year during a period of uncertainty in the global economy, we successfully invested over $1.4 billion of equity to acquire high-quality infrastructure assets in our Utilities, Transport and Energy platforms. Entering 2013, we believe that the global economic recovery is accelerating, albeit uneven across regions due to varying levels of consumer confidence, government austerity and exposure to commodities.

For the most part, we have an optimistic view of the long-term outlook of markets in which we operate. In such an environment, we have found that capital flows tend to vary considerably by region and by sector. This provides an opportunity for us to originate acquisitions by leveraging our international presence and access to capital to invest in sectors and regions where capital is constrained.

Over the past few years, we have built out our platforms such that we now operate over $20 billion of assets with scale in the Utilities, Transport and Energy sectors. Furthermore, within Brookfield's Infrastructure Group, we have over 100 professionals, including business development originators, in each of our targeted regions. In order to generate deal flow, each of our local teams identifies high-quality assets that we'd like to acquire and develops relationships with the owners of these assets. As a result, we have considerable flexibility to be opportunistic and make investments by sector and by geography that offer the most attractive risk-adjusted returns.

While certain sectors, such as the midstream sector in North America appear to be richly priced, we are well positioned to capitalize on attractive opportunities in such areas as port, rail and toll road sectors in a number of different geographies. Over the years, this opportunistic approach has enabled us to successfully invest on a value basis. While we will continue to organically expand our operations, we expect that mergers and acquisitions that result from these proactive business development initiatives will drive near-term growth in the current market environments.

In summary, we continue to be very excited about the prospects for Brookfield Infrastructure. With that, I would like to turn the call over to the operator to open the line for questions.

Thank you. We will now begin the question-and-answer session. (Operator Instructions) The first question is from Cherilyn Radbourne of TD Securities. Please go ahead.

Thanks very much and good morning. I was wondering if you could just give us a bit of perspective on the Australian market in particular in terms of both the outlook for organic expansion opportunities as well as the M&A landscape. I mean, it seems like the economy has cooled, but core infrastructure deals continue to attract pretty high multiples there.

Hi, Cherilyn, it's Sam. I'll talk to that question and maybe John can add to it. First off, I guess with respect to the market conditions in Australia, I think your first comment that the economy has cooled somewhat is correct. Obviously, it is sensitive to commodity prices. I would say that we do see a number of the large industrials continue to progress the projects that they have underway, but there's probably been a slowdown in the new development of projects and that would be consistent with our own Dudgeon Point where we'd probably slowdown activity in reaction to the reduction the reduction in new mine openings in that region.

With respect to prices in the market, I think the conditions there are similar to most other markets. I think for certain assets that are well contracted and in the Utility sector, I think they are trading at values that are relatively richly priced. Having said that, we still see some good value in that market, as well as other markets around the world. So I think really, as I mentioned in my remarks, it comes back to our business development approach of developing relationships with sellers of assets who are looking to structure transactions that meet a number of objectives and if we can do that, we can tend to invest at better returns then what others might do.

And can you speak about the outlook in terms of the deal pipeline in Europe? Are we still -- should we still be thinking mostly about divestitures of non-European assets by those owners or are we getting closer to something actually happening in Europe?

I would say our current focus generally with regard to M&A activity is to focus on European industrials and construction companies that are looking to sell off assets to delever themselves. We're also having discussions with a number of shipping companies who may consider selling terminal operations again to reduce their leverage across their various businesses, and again, there's probably opportunities in the mining sector as well with various companies looking to sell off their infrastructure assets to delever their balance sheets.

I think with regard to Europe, we still have a higher interest in acquiring assets outside of Europe from these companies. Having said that, we are seeing a number of opportunities to invest in Europe, but we are approaching that market with caution. As you are aware, there's quite a bit of sovereign risk that we need to be mindful of.

Okay, that's helpful. Maybe just a smaller question -- when did, or when does, the new datacenter contract kick in for the District Energy segment and can you just give us a sense of the term and whether it includes minimum volume commitment?

Hi, Cheryl, it's John. The contract is going to kick in later on this year and it basically would be a long-term contract and the way that we structure the contracts is they will have a significant component of revenues comprised of demand charge, and then there will be a variable charge. So because of that, we would mitigate the volume risk that we end up by taking, but with the case of the datacenter, because it's basically going to be a base load client, the volume risk is less there than it would be for other types of customers, particularly ones that are focused on cooling.

Okay. Thanks. I will pass it off now.

The next question is from Andrew Kuske of Credit Suisse. Please go ahead.

Thank you, good morning. Just on the capital that's sitting on your balance sheet today from the recycling initiatives and then your liquidity, when you think about deal size, what do you think is possible just on the current balance sheet that you have, and then any kind of access you would have through, say, a [BAM] private fund that would look to invest in the infrastructures space?

Hi, Andrew. Look, I think with our -- our current liquidity is probably plus or minus $500 million on our balance sheet and we are doing a number of things to bolster our liquidity so that we can be opportunistic for transactions. We're continuing to look at the sale of some non-core assets. We will, over time, expand the capacity on the lines that are available and as we have done in the past, we've opportunistically gone to the capital markets to increase our liquidity, and I think all those are available.

And so that, combined with the partnerships that we have in place on the private side, I think we can take on transactions of a very large nature, and we've been able to -- as an example, we did the Babcock transaction back in 2009 and that was a plus-or-minus $200 billion equity transaction and we did that with a much smaller balance sheet. So I think today, we could do transactions even larger than that.

Okay, that's very helpful. And then just as far as Europe goes, you are clearly having a lot of conversations with companies and just owners of assets, but to what degree are you actually having conversations with, say, banks that are effectively long the debt, because if we looked at the European banking situation, a lot of corporate lending activity is just really done by the banks as opposed to the public markets, which is very different than we see in the U.S. experience. So do to what degree have you talked to banks that don't want to essentially take an asset via foreclosure process?

Andrew, we've probably been talking to banks in Europe for the past two or three years regarding loans that are on their books to see if there are opportunities to buy debt to create transactions. That is one of the tools in our toolkit as far as M&A investments. Historically, we have found it difficult to pry loans out of the banks in Europe. I think there may be some [lifting] up in that regard.

I think over the last couple of years, what we've noticed is that they've sold off all the low-hanging fruit, all the higher grade facilities. We do know that they still have some troubled loans on their books and we continue to talk with them, but it's very hard to assess the prospects of whether not we will find opportunities there because there is generally a reluctance for those banks to take losses.

Okay, That's very helpful. And then in just one final one if I may, and its related, but when you look at Europe, really what we would call core Europe versus, say, peripheral, is the focus really on companies that have, say, peripheral European exposure, but with assets sort of elsewhere in the world, as you've done with the Chilean acquisition and other things in Latin America, but I guess to the degree that you're also interested in peripheral Europe, in an outright sense, just because of the valuations in some of those assets and rates look relatively high.

Yes, I'd say we're doing all of the above. We're looking at assets that European companies own outside Europe. We're looking at some of the [offsea] assets they own within some of the northern countries where there's less sovereign risk, and I would say for those assets within the more troubled areas, we are trying to be creative in our approach in try to come up with some structured solutions that can protect ourselves in the event of a calamity, such as a Euro breakup.

So I think we're pretty good at being creative and I think if we were to do something in the more troubled areas at this point in time, it would probably be more of a structured type transaction as opposed to a direct investment, but it all depends on the situation.

Okay. That's extremely helpful. Thank you.

Okay, thanks.

The next question is from Robert Kwan of RBC Capital Markets. Please go ahead.

Good morning. Just kind of back to acquisitions, and you've mentioned some of the asset classes that look attractive to you. It seems like it's the GDP-sensitive stuff, but when it comes to regions, is it still Latin America where you are seeing a lot of those potential opportunities?

Robert, we're actually seeing them all over the world. I think we see them in Latin America for sure; we're seeing them in North America and we're seeing them in Australia. I'd say that the one area where again -- and there is lots of opportunities in Europe as well. My only caveat on Europe is that we are looking to structure them a little more carefully than in some of the other markets where we don't have some of the sovereign issues, but I would say our deal pipeline is robust in all markets and I think the themes are very similar.

They're coming from construction companies that are challenged because they don't have the order books they use to have. It's coming from mining companies and it's coming from shipping companies. Those are clearly the three areas that are probably the most challenged and have the least amount of access to capital today.

And just to add onto one of Sam's comments, we are looking at all geographies, but in certain geographies, certain sectors might be more favorable than others, so we're taking a targeted approach and trying to find what we think the best value is in the particular geography by targeting sectors where there's not as much capital that are going after opportunities.

Any specific examples, John, to (inaudible)?

One example would be to look at, as an example, shipping companies' known container terminals. We have seen some opportunities in North America for those types of assets, District Energy assets to continue building on the acquisition that we made last year. There is some opportunities we are pursuing, and then also in South America as well as Australia to acquire infrastructure that's owned by mining companies that have got less access to capital than they would've had a year ago.

Okay. And just the acquisition parameters, are they still the same? I'm almost thinking from why you would want to divest. You still want to have control of the assets?

Yes, we're very much looking at either control or co-control.

Okay. And just the cautiousness that you have on Europe, it kind of felt maybe coming out of the last quarter that you thought things might've been turning a little bit. Are you a little more cautious at this point than maybe where you were three to six months ago?

No, I don't think our views have really changed. We do have -- are expending a lot of effort into that market. It's probably been a little bit slower as far as the number of opportunities that we see there versus other markets. And clearly, it's more challenged than other markets, but it is a focus for us and I'm pretty confident over the next couple of years, we will make some significant investments in that market. So no, the short answer is we like the market and it is a focus for us.

Okay. Just the last question here on the Australian Rail assets and specifically, just the way you look at contracts. I'm just wondering where -- at what level would you be signing those contracts? Is that the mine level, do you have a corporate guarantee and just kind of overriding what type of security would you have for when you sign those long-term deals?

Each situation is different. Some of the contracts would have corporate guarantees. In some cases, for instance, with our largest customer on the expansion, we had them provide us a letter of credit for over half of the investment we made to protect us against any unforeseen situations. So it's a combination of corporate guarantees, letters of credit and depending on the operation, it could be down to the mine as well.

Okay. And just kind of overriding on that, are there any other contracts there that are particularly concerning to you at this point?

No, so far, everyone is performing as expected. They are all continuing to ramp up and we've been quite pleased with the way the expansion has gone. I think the results from that effort have been exactly what we expected so far.

Okay. That's great, thank you.

The next question is from Brendan Maiorana of Wells Fargo. Please go ahead.

Thanks, good morning. So I wanted to ask a little bit about balance sheet strategy as you're thinking about the new investment opportunities that are out there. As you sort of look at the balance sheet today and you look at the growth opportunities, as you grow going forward, it sounds like there is good investment opportunities that are out there. Do you think this is done in a leverage-neutral way? Do you think that leverage moves up or do you think that you would use it as an opportunity to take leverage down a little bit?

Brendan, it's John. The financing philosophy is basically the same as what we have articulated in the past where we are predominantly financing at the asset level and we're going to size debt based on investment-grade metrics. So it's going to vary whether it be Utility or a Port asset as to how much leverage we're going to have on a debt to cap basis, but that's primarily going to be how we're going to finance the debt side of the capital program. We're not looking to use any meaningful amount of corporate debt as part of the financing strategy. The equity side of things would be financed through a combination of proceeds from asset sales and equity issuances.

So if I just look at your overall metrics right now, you're probably at around somewhere between 7 and maybe 7.5 times kind of debt to EBITDA. That sort of strikes me as high. And so how do you kind of think about that number and leverage, if I sort of look at leverage compared to gross asset value, it's probably in the mid-50s to maybe even 60% depending on how aggressive or conservative you want to get with asset values.

That seems high also, and given that your shares are trading at a nice premium, but I think most people's NAV estimates or value estimates -- wouldn't this be a reasonable opportunity to go ahead and try to reduce leverage as you're growing by sort of over-funding the new investments and it could still be done in a way that's accretive to AFFO and FFO?

Brendan, so first of all, regarding the leverage, one of the things it impacted, the debt to EBITDA multiple over the past year is we had invested a fair amount of capital in the expansions which we're starting to fully see the benefit this year of the cash flow. So the debt to EBITDA multiple is going to come down from the levels that you mentioned, but in terms of just generally how we're looking at financing it is if you look at the underlying operating assets that we've got, they are, by and large, at strong investment-grade levels.

So the way we end up kind of thinking about the capital structure, we don't really manage it to any specific debt to cap overall, but we are managing (inaudible) to -- it's a triple-B-plus rating. The rail is triple-B, the BE-UK is [BAA2], so we're managing basically the underlying operating assets to strong investment grades and I think what you're seeing in terms of the debt to cap reflects the stability of the underlying cash flow that we've got within our business.

So I completely agree with you on that when it looks at -- sort of thinking about appropriate interest rates and setting -- getting an attractive cost of capital on interest rates there, but you're also a public company whose equity gets marked to market on a daily basis. And the closest peer set is probably U.S. MLPs which are at around 3.5 times debt to EBITDA and leverage is lower.

And since out of '09, when the BBI recap happened, asset values have gone up overall, fundamentals have gotten better, but if that reverses and interest rates are low and certainly, asset values could get worse over the next few years if interest rates rise significantly, it strikes me that your equity would be more at risk and that currency could become less attractive. And so I'm just interested in why you wouldn't use this as an opportunity to bring leverage down a little bit and maybe not at the level where peers are, but at least a little bit closer.

First of all, I guess one of the questions is are the MLPs really good peers from a credit standpoint? If you look at our business, as we talked about before, 85% of our cash flow is either regulated or under long-term contracts. We don't -- and much of that doesn't have volume risk, so if you take a look at that compared with the cash flow profile of the MLPs who have got volume risk who, in some cases, are going to have commodity risk, I think it's two different profiles that we are referring to.

On a run rate basis with the current cash flow of the business, the leverage is going to come down into the 6 to 6.5 range, so it's definitely coming down from the number that you mentioned, but on a going-forward basis, we feel that the underlying businesses are strongly capitalized. And as you know, the only corporate debt that we've got is the $400 million bond issue that we did, so it's all basically non-recourse asset-level financing that comprises our balance sheet.

Yes, okay. Maybe related to that -- this could be either, John, for you or for Sam -- where do you think we are sort of in the innings of if you look at where asset values are today from a -- not in your own portfolio, but just sort of deals that you're looking at from a valuation perspective, whether it be EB to EBITDA or IRRs or something like that?

Maybe I will tackle that. And just to make a couple of comments just on some of your earlier comments you made, Brendan, look, I think we are very focused on ensuring that we have tremendous liquidity at all times and we are very sensitive to having strong credit metrics. And as John mentioned, probably 70% of our cash flows comes from four businesses that are all very strongly investment grade, and the structure that we have with asset-level financings that are non-recourse to the parent is something that's been tried and true within Brookfield for many years. And so we're pretty comfortable with our financing strategy, but we're always looking to make it better, so we appreciate your comments.

With respect to asset values, I think it's always dangerous to take a broad brush across every asset class because I think we have demonstrated that we've been able to find value in all market conditions. Obviously, it's much easier when there is a global financial crisis because there's many asset classes that are trading at deep value, but I think our general view is that the pricing for utility-type businesses are probably closer to their peak today because they reflect a relatively low return expectation in line with where interest rates are.

Having said that, we think that there is opportunities for good value and more GDP-sensitive businesses because while people may be using lower discount rates, they reflect much lower growth rates within their businesses.

So as far as innings, I think we're still in the mid-innings on some sectors and for others, maybe a bit at the end, depending on your view of interest rates. So I think obviously, that's open for quite a bit of debate. Some people think we'll have interest rates low for some time still; others have more concerns over inflation.

Yes, that's helpful, Sam. So if rates rise and let's not say there's a spike up, but we get a gradual rise in rates, do you think there's -- do you think asset valuations contract?

I think, Brendan, it's going to depend on the type of asset because to the extent rates rise, then that's probably a story where there's greater economic growth and assets are going to be GDP-sensitive or we've got -- inflation indexation may hold up pretty well. And overall, if you look at our portfolio, I think we've got very good resiliency because we do have a lot of regulated assets where their weighted average cost of capital reset based on the interest rate environment, and we've got significant inflation indexation within our portfolio.

And I would also add that we have, I think, done a pretty good job the last couple of years of refinancing many of our businesses on a long-term basis at these historically low rates, so we should generate very strong cash flows for some time.

Sure, okay. Thank you.

Thanks, Brendan.

The next question is from Bert Powell of BMO Capital Markets. Please go ahead.

Thanks. John, I just wanted to go back just maybe to the operations for a second and just looking at the return on the rate base this quarter. Maybe you can help us think about maybe seasonality now or what your expectations are in terms of return on the rate base. It just seemed a little bit lower than I would've thought.

Hi, Bert. Definitely, there is some seasonality that reflects that. The biggest thing is going to be in a businesslike Powerco where we are paid based on volumetric usage of the system, and the heating load, which drives the natural gas side of the business, is going to be a big factor in terms of how the cash flow of that business materializes. So we were in a low seasonal quarter this past quarter.

The other thing it reflects obviously is just the mix of businesses. The return on rate base is going to vary a little bit, just based on the mix of businesses that we've got, so I think you can probably expect that it's going to be a little bit higher than this quarter in light of just the mix of businesses we've got in a normal seasonal environment.

So what -- I mean, typically, I think the target has been to generate an 11% return on the rate base. Is that still how you're thinking about the business in the context of the current mix?

That's right, we think that's still pretty fair.

Okay. Is 11% the number or you think it can be better than 11%?

No, I think it's in the 11% ballpark, Bert.

Okay. And just on the toll roads in Brazil, I know it's only been a short period of time. You did mention that traffic activity is up in Chile. I'm just wondering if you can offer us some commentary around what the activity levels are like on those roads and what the prospects are for deploying capital and extending the concession lives?

Hi, Bert. Yes, I'd make, I guess, two comments. I think in our Chilean operations, we continue to have quite a bit of excess capacity and so we're seeing strong growth rates over the next couple of years and obviously, that will level off as the road matures and we have less capacity and will have to invest additional capital to debottleneck it, but I think for the next couple of years, we will continue to see strong growth obviously from the rates that we're able to charge there, which are inflation-linked as well as real rate increases of 3.5%, but as well reflecting these strong growth rates.

In respect to Brazil, we've actually been pretty pleased with the traffic growth across the roads in general this year. As you know, growth in Brazil has moderated more than we probably expected in the near term, but the light vehicles, the commuter traffic, has stayed up and hasn't really reflected the drop in those growth rates. We've probably seen a bit more of an impact on the heavy traffic, but we are expecting that economy to pick up over the next couple of years and with that, we'll see continued growth, but generally, I would say those markets are robust and the roads that we own are critical arteries both in the urban centers and in inter-urban traffic.

Is there a real possibility, Sam, to extend those concession lives?

Yes, I think there is, but there will be some concessions required, so to extend concession lives is going to require two things, and one is either a reduction in tolls, which the government may want in order to make it more affordable. And so it would be done on sort of an NPV-neutral basis.

Okay.

We actually wouldn't mind doing that because it probably improves traffic over the long term, so that's a trade that we would be comfortable with. In addition to that, we are able to extend concessions when we invest additional capital and again, I think this is probably more the case in Brazil, but there is opportunities in Chile as well, where the government hadn't planned for certain bottlenecks to arise and the traffic to be as much as it is. So there is opportunities for us to go to the regulator, suggest various projects, which we can then leverage into longer concession lives.

Okay. Thank you.

Okay. Thanks, Bert.

(Operator Instructions) The next question is from Frederic Bastien of Raymond James. Please go ahead.

Good morning. Just a quick one from me and I apologize if you have discussed this before, but would natural gas prices strengthening into the second quarter, do you see some upside in your natural gas transmission business in the short term?

Hi, Frederic. The business following the FERC rate case, which ended up being fully implemented at the end of 2009, really did reduce the amount of excess gas that we recover, so we still do recover some excess natural gas and selling it off at higher prices will be positive for the results, but by and large, the biggest driver for our natural gas pipeline is going to be the difference in price that occurs in different locations. So that locational basis spread is going to drive how much people will pay for transportation.

And as we re-contract and things of that nature, there are certain customers like the marketing customers that are more price sensitive, whereas we're seeing with local distribution companies that they are not really focused on the current basis spreads. It's more about reliability of the system and we're able to contract at full tariff with those customers.

So this is a very strong franchise and we think that as natural gas demand increases, that we're very well positioned because we touch a lot of the shale basins and we've got 60% market share of Chicago, so the profitability of the business is going to definitely increase, but I think it's a function of increasing gas demand is probably going to be the biggest driver.

Got it, thank you. And do you see some opportunities -- you've been talking about acquiring in more -- in other jurisdictions, in other markets. Is that a sector that you've been focusing on as well?

We definitely are looking at energy assets. We continue to look in North America and we're very interested, but we're trying to find situations where we can earn good risk-adjusted returns, but likewise, we're looking to invest in energy assets in other jurisdictions, so that is a core area for us

Got it, thank you very much.

Thanks.

There are no more questions at this time. I'll now turn the call back over to Mr. Pollock for closing comments.

Thank you, operator. And I would just like to thank everyone for participating on our call today and we look forward to speaking with you again next quarter to review our progress. Thank you.

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