A group of infrastructure investors proposed the A$22.26 billion ($16.7 Billion) purchase of Sydney Airport Holdings Pty Ltd. This would allow them to take a longer-term look at the travel industry that has been hit by the pandemic.
Pension funds and their investment managers have been chasing higher yields due to record-low interest rates. With an enterprise value of A$30billion including debt, the purchase would enable them to reap financial rewards when travel demand rebounds and borders reopen.
The deal, if it is successful, would be Australia’s largest this year. It would surpass the $8.1 billion spinoffs of Endeavour Group Ltd, Star Entertainment Group Ltd’s $7.3 million bid for Crown Resorts Ltd.
The Sydney Aviation Alliance, which is a consortium consisting of IFM Investors and QSuper, has offered A$8.25 per Sydney Airport Share, a 42% premium over the stock’s Friday close.
Stocks rose as high as 38% to A$8.04 on Monday, but it later fell to A$7.55, suggesting market uncertainty about whether or not the deal will be successful.
Sydney Airport acknowledged that the offer was lower than its pre-pandemic share prices and stated it would examine the proposal. In the absence of a superior one, it will recommend it to shareholders.
In January 2013, the airport operator’s share price reached a record A$8.86, just before the new coronavirus pandemic caused a decline in travel demand.
This company is Australia’s sole listed airport operator. If the deal is successful, it would be in line with other major airports in Australia that are owned by consortiums of infrastructure investors, mostly pension funds.
According to the Association of Superannuation Funds of Australia, Australia’s mandatory retirement savings system (known as superannuation) has assets of A$3.1 trillion.
Funds are now looking to infrastructure investments to get higher yields, despite record low interest rates.
“It’s the right time to be looking at these assets that have got a 75 year life when conditions are arguably the bottom,” said a Sydney Airport investor. He declined to be identified because his firm was still reviewing the proposal. It’s opportunistic, but it’s understandable.
Due to the slower vaccination program in Australia, Australia’s international borders will remain closed for at least one year.
Domestic travel was also disrupted during school holidays by a Sydney lockdown lasting two weeks. This was due to the spread of COVID-19, a highly contagious variant of COVID-19. Sydney residents have been denied entry to other states.
The international traffic to Sydney Airport was down by more than 93% in May compared to the same month in 2019, and domestic traffic was down by 39.2%.
Since its inception, the airport has held the monopoly of traffic between Australia’s largest city and it. However, that will change with the opening Western Sydney Airport in 2026.
Sydney Aviation Alliance stated that it does not expect to make significant changes in the management, services or credit ratings of the airport.
According to the consortium, its members directly or indirectly invest on behalf of over 6 million Australians. They collectively manage more than A$177 trillion in infrastructure funds worldwide, which includes stakes at 20 airports.
IFM has stakes in major airports such as Melbourne, Brisbane, Perth, Adelaide, and Perth. QSuper holds a stake at Heathrow Airport in Britain, while Global Infrastructure invests in Gatwick and London City Airports in the country.
UniSuper, Sydney Airport’s largest shareholder, has to agree to reinvest its equity in order for a comparable equity stake in the consortium’s vehicle.
Estelia is a financial analyst who has been covering the finance industry since 2018. Prior to her career in journalism, Estelia was a security analyst and a copywriter at AS Technology.