Shared from the 9/14/2021 Financial Review eEdition

Sydney Airport opens books as bid raised

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A resurgent post-lockdown aviation sector, which could boost the value of Sydney Airport, looms as a potential obstacle to the sale of the transport hub after the bidders raised their offer to $23.6 billion cash.

The airport has finally opened its books to the IFM Investors-led consortium after it held informal talks with the company late last week and boosted their offer a second time to $8.75 per share – a 50¢ increase on the initial approach made two months ago.

Sydney Airport’s board said it would recommend the acquisition at the current price if the consortium made a binding offer, there were no competing bids, and if the deal secured the approval of an independent expert.

The deal, which would occur via a scheme of arrangement, could take up to six months to complete. The timing will coincide with Christmas, which means a shareholder vote is unlikely to be held until early next year.

The airport’s 140,000 shareholders will consequently have time to see how fast domestic and international flights recover before deciding whether to sell or hold their shares.

More than 50 per cent of shareholders by number must approve a scheme of arrangement for it to be successful, while 75 per cent of total votes cast must also be in favour.

Sydney Airport’s biggest shareholder, UniSuper, which owns 15.3 per cent of the company, said it would review the details before making a final decision.

‘‘The Sydney Airport board deserves full credit for getting the consortium to bid $8.75,’’ said John Pearce, UniSuper’s chief investment officer.

‘‘The price represents a very full valuation for the airport, particularly given the uncertain medium-term outlook for international travel.’’ UniSuper, which has previously said it sees merit in holding shares in an unlisted airport, is required to keep its equity stake as part of the conditions outlined by the bidders.

Daniel Simmonds, a portfolio manager at Milford Asset Management, said the latest offer was ‘‘a reasonable price.’’

‘‘We view this progression as a good outcome for all parties,’’ Mr Simmonds said.

Jun Bei Liu, a portfolio manager at Tribeca Investment Partners, said the increased offer was a positive development. ‘‘It’s important for the board to engage.’’

While she was hoping for ‘‘a sweetener’’ down the track in the form of a special dividend or another 25¢ increase in the price to take it up to $9 per share, Ms Bei Liu said she expected most investors to approve the proposal.

The airport’s shares rose 4.6 per cent to $8.37 yesterday.

The stock traded at below $6 in June but leapt after the initial approach was revealed on July 5.

The proposal needs approval from the Australian Competition and Consumer Commission, which has said it would take an extremely close look at any recommended offer, and the Foreign Investment Review Board.

The Airports Act limits foreign ownership of Australia’s biggest airports to 49 per cent.

The consortium, which includes New York-based Global Infrastructure Partners (GIP), QSuper and Australian-Super, is understood to have held initial discussions with both regulators.

The ACCC will do a public review of the proposed transaction, which typically takes about three months. If the ACCC needs more information, and releases a statement of issues, the process could take longer.

IFM and GIP would be Sydney Airport’s two biggest owners if the bid succeeds but have not revealed the exact size of their proposed stakes, or how they would allocate their investments.

IFM already owns 20 per cent of Brisbane Airport and 25 per cent of Melbourne Airport, while QSuper holds a stake (it has not disclosed the size) in Brisbane Airport through the Queensland Investment Corporation.

AustralianSuper, which is one of IFM’s member funds, holds a 5 per cent direct stake in Perth Airport in addition to an indirect stake of 4.75 per cent through an investment with Hastings Funds Management.

Sydney Airport’s investors urged the airport’s board to engage with the IFM consortium after the company received two initial takeover proposals, the second of which was priced at $8.45 per share.

The airport said the consortium’s previous offers were opportunistic, given they emerged during some of the worst periods of the pandemic, when most domestic and international flights were grounded.

Analysts recently lowered their forecasts for Sydney Airport’s full-year earnings after the company revealed the toll of the current east coast lockdowns. The airport’s July domestic traffic slid 75 per cent to 69,000 passengers, compared with a year earlier, and was down 63 per cent on July 2019, before the pandemic broke out.

Total passenger numbers fell 36 per cent in the six months to June compared with a year earlier, with the fall mostly driven by a 91 per cent decline in international travellers, which pay higher fees than local flyers.

However, the airport expects domestic and international flights will rebound when Australia hits vaccination targets.

Credit ratings agency Moody’s Investors Service forecasts Australian passenger numbers will return to pre-COVID levels by 2024 and said it expected recovery to start in the December quarter.

‘‘Past local and international experiences suggest an accelerated recovery in domestic passenger traffic once travel impediments are removed, provided travellers have confidence that borders will remain open,’’ Moody’s said.

The airport reported an interim net loss of $97.4 million in August, down on a $53.6 million loss in the year-earlier period. It has not paid a dividend since December 2019 and has not given guidance on when dividends will resume.

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