[Click eStock] "KB Balhae Infra Posts Highest Dividend Yield in Infrastructure Fund Industry"

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Recently, infrastructure has emerged as the fastest-growing sector in the global alternative investment market. Infrastructure funds primarily focus on subordinated loan investments, with some investing in equity as well. The interest and dividend income generated are distributed to shareholders. Due to their loan-centered strategy, these funds exhibit stable cash flows that are less sensitive to short-term asset performance. Assuming a 30-year operating period, the initial 20 years are dedicated to repaying the principal and interest on senior loans, and only after these are fully repaid-starting from year 20-do payments on subordinated loans and dividends begin.

On August 22, Samsung Securities analyzed KB Balhae Infrastructure, noting that its subordinated loan investment ratio stands at 72%, which contributes to high dividend stability. The firm introduced a new target price of 10,500 won.

KB Balhae Infrastructure invests in five assets, including the Shin Daegu-Busan Expressway, with a portfolio comprising 72% subordinated loans and 28% equity. Established as a private infrastructure fund in February 2006 under the Private Investment Act, it has been managed for 20 years. The fund has invested in a total of eight assets and has exited three-Uijeongbu Light Rail, Busan-Gimhae Light Rail, and Gunsan Port General Cargo Terminal. At its inception in 2006, pension funds and insurance companies were the main shareholders (LPs). Investments began between 2006 and 2008, and dividends have been distributed consistently every year since then.

Lee Kyungja, a research analyst at Samsung Securities, explained, "In August last year, an additional 115 billion won was invested in both equity and subordinated loans of the main asset, the Shin Daegu-Busan Expressway," adding, "The equity stake in this asset increased from 40.9% to 50.2%, thereby expanding control."

She further stated, "Interest income from the Shin Daegu-Busan Expressway, which carries an interest rate of 10.3% to 10.5%, is the most important source for dividends," and added, "At the time of investment, leverage was used, and the borrowed funds were repaid with capital raised through the domestic stock market listing."

Lee noted, "Dividends are resolved in June and December and paid twice a year," and analyzed, "As a listed infrastructure fund, principal recovered from asset liquidation or repaid loan principal is used for new asset investments or loan repayments, with a portion returned to shareholders as dividends."

She predicted, "Repayment of subordinated loan principal on the Shin Daegu-Busan Expressway began last year, and these funds will be used to reduce debt and finance new investments." She also emphasized, "The weighted average traffic volume and toll revenue of the five operating toll roads have consistently recorded growth rates of around 1% to 3%. Since the COVID-19 pandemic, the performance of toll roads has remained strong."

The Shin Daegu-Busan Expressway and Suwon Ring Road have both reported traffic volumes and toll revenues exceeding expectations. For the remaining three assets, as some subordinated loan interest is being accrued, the cash basis accounting principle is adopted, recognizing interest income only when it is actually received. As a result, there is little discrepancy between interest income and cash flow.

Lee explained, "KB Balhae Infrastructure is allowed to borrow up to 30% of its capital under the Private Investment Act. The fund currently has a borrowing capacity of 248 billion won, with 160 billion won still available for additional borrowing." She stressed, "If the private investment revitalization plan passes the National Assembly plenary session, it will have a positive effect."

At the end of 2021, the government implemented a separate taxation benefit for infrastructure funds, capped at 100 million won. In 2022, the benefit was extended for three years and was set to expire at the end of this year. Recently, a further three-year extension was included in the revised tax bill. The tax benefit will now be available until the end of 2028, and infrastructure funds can conveniently receive this benefit through dedicated investment account structures.

Lee introduced, "The assets KB Balhae Infrastructure is currently reviewing include the GTX-C line and the renewable energy sector." She expects that, since GTX-C involves joint participation by KB Financial Group affiliates, the deal's execution and structural stability will be strong.

She analyzed, "The dividend yield is among the highest in the industry, exceeding the average dividend yield of 6.9% for listed REITs and infrastructure funds, despite the fund's low leverage."

KB Balhae Infrastructure plans to pay a dividend of 325 won per share for the first half of the year on August 29.

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