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Sydney Airport Secures $ 16.7 Billion Buyout Offer As Investors Take Longer-Term View On Travel

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SYDNEY – A group of infrastructure investors has proposed one of Australia’s largest acquisitions, a purchase of Sydney Airport Holdings Pty Ltd for A $ 22.26 billion ($ 16.7 billion), with a longer-term view of the infrastructure sector. travel plagued by the pandemic.

The proposal comes as historically low interest rates drive pension funds and their investment managers to pursue higher returns. The purchase, with a business value of AU $ 30 billion, including debt, would allow them to monetize when borders reopen and travel demand recovers.

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If successful, the purchase of Australia’s largest airport would be one of the largest in the country by business value in US dollar terms, on a par with the $ 22 billion purchase of shopping center operator Westfield Group by Unibail- Rodamco in 2017, Refinitiv data showed.

It would also rank as the eighth-largest deal globally this year and the second-largest airport purchase, behind the purchase of Britain’s Heathrow Airport for $ 30.2 billion in 2006.

Sydney Aviation Alliance, a consortium made up of IFM Investors, QSuper and Global Infrastructure Partners, has offered A $ 8.25 per share of Sydney Airport, a premium of 42% at the close of the share on Friday.

The news sent shares soaring 38% to A $ 8.04 in early trading on Monday, but then fell back to around A $ 7.55, indicating market uncertainty about whether the deal will be successful.

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Sydney Airport noted that the offer was below the pre-pandemic share price and said it would review the proposal, which depends on giving due diligence and recommending it to shareholders in the absence of a superior offer.

The airport operator’s share price hit a record A $ 8.86 in January last year, before the novel coronavirus pandemic caused travel demand to collapse.

LOOKING FOR HIGHER PERFORMANCE

The company is the only publicly traded airport operator in Australia. A successful deal would align its ownership with the country’s other major airports, which are owned by consortiums of infrastructure investors, mainly pension funds.

Australia’s mandatory retirement savings scheme, known as retirement, has assets of AU $ 3.1 trillion, according to the Australian Retirement Fund Association.

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With historically low interest rates, the funds seek investments in infrastructure to obtain higher returns.

“This is the right time to look at these assets that have a 75-year useful life when conditions are possibly at the bottom,” said a Sydney airport investor who declined to be named because the person’s firm was still evaluating the proposal. “It is opportunistic in that sense, but understandable.”

Australia’s international borders are expected to remain closed until at least the end of the year due in part to a slower vaccination program than in most developed countries.

Domestic travel has also been interrupted by a two-week lockdown in Sydney during the normally busy school holiday period, following an outbreak of the highly contagious Delta variant of COVID-19. Other states have closed borders to Sydney residents.

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In May, Sydney Airport’s international traffic was down more than 93% compared to the same month in 2019, while domestic traffic was down by 39.2%.

The airport has long had a monopoly on traffic to and from Australia’s most populous city, but that will end in 2026 with the opening of Western Sydney Airport.

Sydney Aviation Alliance said it did not anticipate making substantial changes to the airport’s target management, services, operations or credit ratings.

IFM has interests in the main airports of Melbourne, Brisbane, Perth and Adelaide. QSuper owns a stake in UK Heathrow Airport, while Global Infrastructure is invested in UK Gatwick and London City airports.

Their offer is contingent on UniSuper, Sydney Airport’s largest shareholder with a 15% stake, agreeing to reinvest its equity stake in an equivalent equity stake in the consortium vehicle.

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UniSuper, which also has stakes in Adelaide and Brisbane airports, said it was not a partner in the consortium and was not aware of any details outside of the publicly disclosed information.

“However, UniSuper, in principle, sees the merit of the Sydney Airport being converted from a public company to an unlisted company. UniSuper also has a favorable opinion of the consortium partners, ”the fund said.

($ 1 = 1.3294 Australian dollars)

(Reporting by Jamie Freed in Sydney and Scott Murdoch in Hong Kong; Additional reporting by Byron Kaye in Sydney and Nikhil Kurian Nainan and Soumyajit Saha in Bengaluru; Editing Stephen Coates and Christopher Cushing)

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In-depth reports on the economics of innovation from The Logic, presented in association with the Financial Post.

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