Equity Partners Infrastructure Company No. 1 Limited Independent Adviser’s Report 7 June 2012 KordaMentha confirms that it: (a) has no conflict of interest that could affect its ability to provide an unbiased report; and (b) has no direct or indirect pecuniary or other interest in the proposed transaction considered in this report, including any success or contingency fee or remuneration, other than to receive the cash fee for providing this report. KordaMentha has satisfied the Takeovers Panel, on the basis of the material provided to the Panel, that it is independent under the Takeovers Code for the purposes of preparing this report. Table of contents 1 Introduction ................................................................................................................................................... 1 2 Overview of EPIC .......................................................................................................................................... 3 3 The Proposed Transaction .......................................................................................................................... 11 4 Agreed Net Asset Value Per Share ............................................................................................................ 13 5 Valuation ..................................................................................................................................................... 15 6 Merits of Proposed Transaction .................................................................................................................. 23 Appendix 1: Sources of information ...................................................................................................................... 27 Appendix 2: Qualifications and declarations ......................................................................................................... 28 Appendix 3: Comparable companies .................................................................................................................... 30 i 1 Introduction 1.1 Background Equity Partners Infrastructure Company No. 1 Limited (EPIC) is a widely held, unlisted New Zealand company. It was established in 2007 to invest in infrastructure assets and entities that own or operate infrastructure assets. Equity Partners Infrastructure Management Limited (EPIM), a wholly owned subsidiary of Pyne Gould Corporation Limited (PGC), previously performed the role of manager of EPIC’s investments and operations pursuant to a Management Agreement dated 26 April 2007 (the Management Agreement). The Management Agreement provided that EPIC may terminate the agreement if there is a change of control of EPIM or its holding company without the prior written consent of EPIC. EPIM sought that consent in October 2011 as a result of the takeover offer by Australasian Equity Partners Fund No.1 LP (AEP) of PGC. The independent directors of EPIC concluded that they could not give that consent on the basis of advice to EPIC that a change of control of EPIM could constitute a change of control for the purposes of the shareholders’ agreement for its Moto Hospitality Limited (Moto) investment. To do so could have triggered pre-emptive rights requiring EPIC’s shareholding in Moto to be offered for sale to other Moto shareholders. On 13 February 2012 EPIC and EPIM signed a Deed of Termination of Management Agreement (Termination Deed). The Management Agreement terminated at 5pm on 13 February 2012. Pursuant to the Termination Deed, EPIC agreed to make total payments to EPIM of $8,850,459. These termination and performance fees (Termination Payments) are proposed to be satisfied by EPIC issuing ordinary shares or ordinary shares and cash. EPIM’s parent company Equity Partners Asset Management Limited (EPAM) and Torchlight Fund No. 1 LP (Torchlight) are associated parties of EPIM for the purposes of the Takeovers Code. They held 16.4% of EPIC’s shares on issue. EPIC issued 5,960,000 shares to EPIM at 45 cents per share in respect of the Termination Payments (Tranche 1), which brings the combined EPIM and associated parties’ shareholding to 19.9%. On 11 May 2012 these shareholdings were consolidated under Torchlight Securities Limited (TSL) (which now holds 19.9% of EPIC’s shares). EPIC proposes to issue a further 13,707,687 shares to EPIM at 45 cents per share to satisfy the balance of the Termination Payments fully in shares (Tranche 2). 1.2 The Takeovers Code Rule 6 of the Takeovers Code (the Code) prohibits: a person who holds or controls less than 20% of the voting rights in a code company from increasing its holding or control of voting rights (together with its associates) beyond 20%; and a person holding or controlling 20% or more of the voting rights in a code company from increasing its holding or control of voting rights; unless the person and that person’s associates comply with the exceptions to this fundamental rule. Page 1 One of the exceptions, set out in Rule 7(d) of the Code, enables a person and its associates to increase their holding or control of voting rights by an allotment of shares if the allotment has been approved by an ordinary resolution of the code company. The proposed issue by EPIC of a further 13,707,687 shares to EPIM would increase the combined EPIM and TSL shareholding to 27%. EPIC is seeking shareholder approval to issue the Tranche 2 shares (the proposed transaction). We understand shareholders will vote on an ordinary resolution in respect of the issue of the Tranche 2 shares at a meeting of EPIC’s shareholders. 1.3 KordaMentha’s role Rule 18 of the Code requires the directors of a code company to obtain an Independent Advisor’s Report to be included in the notice of meeting (the Report). The Report has been prepared to assist those persons who may vote to approve the allotment of shares to consider the merits of the proposed transaction, which is the approach adopted by independent advisers when reporting under the Takeovers Code. The term ‘merits’ has no definition either in the Takeovers Code itself or in any statute dealing with securities or commercial law in New Zealand. While the Takeovers Code does not prescribe a meaning of the term ‘merit’, it suggests that merits include both positives and negatives in respect of a proposed transaction. KordaMentha has evaluated the proposed transaction by reviewing the following factors: the net asset value (NAV) per share established and agreed between EPIC and EPIM utilised for the purpose of the proposed Tranche 2 share issue; the valuation multiples implied by the proposed transaction (and comparison to broadly comparable companies) on the Moto investment, EPIC’s only substantial investment; the counter-factual scenario where EPIC does not issue any further shares to EPIM but pays the balance of Termination Payments, in cash in accordance with the Termination Deed; any other advantages or disadvantages for EPIC shareholders from accepting or rejecting the proposed transaction. EPIC and EPIM have already agreed the $8,850,459 of Termination Payments to terminate the Management Agreement. We understand from EPIC’s lawyers that EPIC’s shareholders do not need to give their approval for this transaction. Since that transaction has been agreed, the Report does not consider the merits of the transaction to terminate the Management Agreement only the merits of allotting shares under Tranche 2 in consideration for EPIC meeting its liability to pay the Termination Payment. 1.4 Other The sources of information, to which we have had access and upon which we have relied, are set out in Appendix 1 of this report. This report should be read in conjunction with the statements and declarations set out in Appendix 2 regarding our independence, qualifications, general disclaimer and indemnity and the restrictions upon the use of this report. References to $ relate to New Zealand dollars and £ relate to pound sterling, unless specified otherwise. References to years or financial years mean financial year end 31 March and 31 December for EPIC and Moto respectively. Please note tables may not add due to rounding. Page 2 2 Overview of EPIC 2.1 Investments EPIC’s investment strategy, as set out in its prospectus, is to identify and acquire interests in high-quality and high-yielding infrastructure assets that meet the following criteria: the investment must be reasonably expected to add shareholder value, by being yield accretive and/or by increasing the potential for capital gains; the investment must be an infrastructure asset (or exhibit the characteristics of an infrastructure asset); the investment must be in OECD or OECD like countries; the investment should preferably operate in a clearly defined and transparent regulatory environment; and EPIC should preferably invest as a co-investor alongside at least one other major infrastructure investor, and the asset must have a manager with appropriate expertise. Following an IPO in June 2007, which raised approximately $95 million, EPIC purchased shares in Thames Water Utilities Limited (Thames Water) for approximately £33 million. This investment was subsequently sold in in December 2011. In June 2009, EPIC made one other substantial investment (£26.69 million) in Moto, a UK motorway service operator; and two other relatively small investments were made in September 2008 in Arqiva Limited (Arqiva) (£1.45 million) and Wales & West Utilities Limited (Wales & West) (£0.64 million). These are EPIC’s current investments. 2.2 Shareholdings Prior to