Brookfield Infrastructure Partners L.P. - MRRS Decision

MRRS Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- entity to spin off issuer to entity's security holders -- issuer to have interest in underlying assets -- entity to hold interest in issuer through units of entity underlying issuer -- units redeemable into units of issuer -- issuer may include entity's indirect interest in issuer when calculating issuer's market capitalization for purposes of using 25% market capitalization exemption for certain related party transactions.

Applicable Ontario Statutory Provisions

OSC Rule 61-501 Insider Bids, Issuer Bids, Business Combinations and Related Party Transactions, ss. 5.4, 5.6, 9.1.

December 21, 2007

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO AND QUÉBEC

(the Jurisdictions)

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

BROOKFIELD INFRASTRUCTURE PARTNERS L.P.

(the Filer)

 

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (the Decision Maker) in each of the Jurisdictions has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) granting the Filer an exemption from the Minority Protections (defined below) in connection with any related party transaction of the Filer entered into indirectly through Brookfield Partnership, the Holding Entities or the operating entities (as each of such terms is defined below) (the Requested Relief).

Under the Mutual Reliance Review System for Exemptive Relief Applications:

(a) the Ontario Securities Commission is the principal regulator for this application, and

(b) this MRRS Decision Document evidences the decision of each Decision Maker.

Interpretation

Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision. In addition, Brookfield means Brookfield Asset Management and its affiliates other than the Filer, the Brookfield Partnership and subsidiaries of the Brookfield Partnership.

This decision is based on the following facts represented by the Filer:

Representations

Background

1. Brookfield Asset Management Inc. (Brookfield Asset Management) is a corporation formed under the laws of the Province of Ontario.

2. Brookfield Asset Management is and has been a reporting issuer (or the equivalent) for a period in excess of 12 months in each Jurisdiction.

3. The Filer and its related entities are being established by Brookfield Asset Management as its primary vehicle to own and operate certain infrastructure assets on a global basis.

4. The proposed structure for the Filer and the spin-off is as follows:

(a) The Filer is a newly formed Bermuda exempted limited partnership that was established on May 21, 2007.

(b) Brookfield Asset Management intends to make a special dividend to holders of its common shares of 100% of the limited partnership interests (the BIP Units) in the Filer (the spin-off).

(c) Immediately following the spin-off, the Filer's sole asset will be an approximate 60% limited partnership interest in Brookfield Infrastructure L.P. (the Brookfield Partnership), a newly formed Bermuda exempted limited partnership that was established on August 17, 2007.

(d) Brookfield Infrastructure Partners Limited, which serves as the general partner of the Filer (the Managing General Partner), will hold the general partner interest in the Filer.

(e) The affairs of the Filer, which will be a publicly traded limited partnership following the spin-off, will be carried on by the Managing General Partner. The Managing General Partner is an indirect wholly-owned subsidiary of Brookfield Asset Management that is an exempted company existing under the laws of Bermuda. The Filer will enter into a management agreement (the Master Services Agreement) with Brookfield related entities (collectively, the Manager) to provide the Filer, the Brookfield Partnership and its direct wholly owned subsidiaries and indirect subsidiaries (the Holding Entities) with management and other services.

(f) The principal activity of the Brookfield Partnership will be to hold all the common shares of the Holding Entities, which hold interests in operating entities that will hold timber, electricity transmission and other infrastructure-related assets or operations (collectively, the operating entities). Brookfield will provide an aggregate of US$20 million of working capital to certain Holding Entities through a subscription of preferred shares of such Holding Entities.

(g) One or more wholly owned subsidiaries of Brookfield Asset Management will hold an approximate 1% general partner interest and the remaining 39% limited partnership interest in the Brookfield Partnership (the Brookfield Units).

(h) The affairs of the Brookfield Partnership will be carried on by the Brookfield Partnership's general partner (Infrastructure GP LP), an exempted Bermuda limited partnership, all the interests of which will be held by Brookfield.

(i) Brookfield Asset Management will hold its interest in the Filer through Brookfield Units rather than BIP Units because of certain US tax implications. Pursuant to a redemption exchange mechanism (the Redemption Exchange Mechanism), which is described in greater detail in the Filer's preliminary prospectus dated July 26, 2007 (the Prospectus), at any time after two years from the date of closing of the spin-off, Brookfield will have the right to require the Brookfield Partnership to redeem all or a portion of the Brookfield Units for cash. It may exercise its right of redemption by delivering a notice of redemption to the Brookfield Partnership and the Filer. After presentation for redemption, it will receive, subject to the Filer's rights described below, for each Brookfield Unit that is presented, cash in an amount equal to the market value of one BIP Unit multiplied by the number of Brookfield Units to be redeemed (as determined by reference to the five day volume weighted average of the trading price of BIP Units and subject to certain customary adjustments). Upon its receipt of the redemption notice, the Filer will have a right of first refusal entitling it, at its sole discretion, to elect to acquire all (but not less than all) of the Brookfield Units so presented to the Brookfield Partnership in exchange for BIP Units, on a one for one basis (subject to certain customary adjustments). Based on the number of BIP Units expected to be issued on the spin-off, Brookfield would receive an aggregate limited partnership interest in the Filer equal to 39% if it exercised its redemption right in full and the Filer exercised its right of first refusal.

(j) The Filer is not a reporting issuer but will become a reporting issuer in all provinces and territories of Canada upon obtaining a receipt for its final prospectus.

(k) Brookfield will acquire BIP Units in connection with the satisfaction of Canadian federal and U.S. "backup" withholding tax requirements upon the spin-off and as a result of the fact that no fractional BIP Units will be distributed pursuant to the spin-off.

(l) Following the spin-off, BIP Units will be listed and posted for trading on the New York Stock Exchange.

5. As disclosed in the Prospectus, the Filer may enter into transactions with certain related parties, including the Managing General Partner, Infrastructure GP LP, the Manager and Brookfield Asset Management, either directly or indirectly through Brookfield Partnership, the Holding Entities or the operating entities in which the Holding Entities hold interests.

6. f the Legislation applies to a related party transaction by an issuer and the transaction is not otherwise exempt:

(a) the issuer must obtain a formal valuation of the transaction prepared by an independent valuator; and

(b) the issuer must obtain approval of the transaction by disinterested holders of the affected securities of the issuer (together, requirements (a) and (b) are referred to as the Minority Protections).

7. A related party transaction that is subject to the Legislation may be exempt from the Minority Protections if at the time the transaction is agreed to, neither the fair market value of the subject matter of, nor the fair market value of the consideration for, the transaction exceeds 25% of the issuer's market capitalization.

8. The Filer may not be entitled to rely on the automatic transaction size exemptions available under the Legislation from the requirements relating to related party transactions in the Legislation because the definition of market capitalization in the Legislation does not contemplate securities of another entity that are exchangeable into equity securities of the issuer.

9. The Brookfield Units represent part of the equity value of the Filer and provide the holder of the Brookfield Units with economic rights which are, as nearly as possible except for tax implications, equivalent to the BIP Units. Taken together, the effect of Brookfield's redemption right and the Filer's right of first refusal is that one or more wholly-owned subsidiaries of Brookfield will receive BIP Units, or the value of such units, at the election of the Filer. Moreover, the economic interests that underlie the Brookfield Units are identical to those underlying the Filer's units; namely, the assets and operations held directly or indirectly by the operating entities.

10. If the Brookfield Units are not included in the market capitalization of the Filer, the equity value of the Filer will be understated by the value of Brookfield's limited partnership interest in the Brookfield Partnership (initially, approximately 39%). As a result, related party transactions by the Filer that are entered into indirectly through Brookfield Partnership, the Holding Entities or the operating entities may be subject to the Minority Protections in circumstances where the fair market value of the transactions are effectively less than 25% of the fully diluted market capitalization of the Filer.

Decision

Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the decision has been met.

The decision of the Decision Makers under the Legislation is that the Requested Relief be granted to the Filer provided that:

(a) the transaction would qualify for the market capitalization exemption contained in the Legislation if the Brookfield Units were considered an outstanding class of equity securities of the Filer that were convertible into BIP Units;

(b) there be no material change to the terms of the Redemption Exchange Mechanism, as described above and in the Prospectus; and

(c) the Filer's final prospectus, and any annual report or equivalent that is required to be filed in accordance with applicable securities laws, contain the following disclosure, with any immaterial modifications as the context may require:

"Each of Ontario Securities Commission Rule 61-501 ("Rule 61-501") and Regulation Q-27 of the Autorité des Marchés financiers ("Regulation Q-27") provides a number of circumstances in which a transaction between an issuer and a related party may be subject to valuation and minority approval requirements. An exemption from such requirements is available when the fair market value of the transaction is not more than 25% of the market capitalization of the issuer. Brookfield Infrastructure Partners L.P. has applied for exemptive relief from the requirements of Rule 61-501 and Regulation Q-27 that, subject to certain conditions, would permit it to be exempt from the minority approval and valuation requirements for transactions that would have a value of less than 25% of Brookfield Infrastructure Partners L.P.'s market capitalization if Brookfield's indirect equity interest in Brookfield Infrastructure Partners L.P. was included in the calculation of Brookfield Infrastructure Partners L.P.'s market capitalization. As a result, the 25% threshold above which the minority approval and valuation requirements would apply would be increased to include the approximately 40% indirect interest in Brookfield Infrastructure Partners L.P. held by Brookfield. Rule 61-501 and Regulation Q-27 will be replaced by Multilateral Instrument 61-101 on the coming into force of the instrument. Brookfield Infrastructure Partners L.P. will apply for similar relief under Multilateral Instrument 61-101 (and similar legislation or regulations in other jurisdictions where such policies are applicable)."

"Naizam Kanji"
Manager, Mergers & Acquisitions
Ontario Securities Commission