A consortium of investors is offering A$22.26 billion ($16.7 billion) for Sydney Airport Holdings Pty Ltd, betting on long term recovery of the travel sector after the pandemic.
The consortium offered A$8.25 (US$6.20) a share for the operator of Australia’s busiest airports, the company said in a stock exchange filing on Monday. Sydney Airport shares rose as much as 40 per cent to A$8 following the offer.
Members of the consortium include Australian investment manager IFM Investors, pension fund QSuper and Global Infrastructure Management (Australia), an affiliate of New York-based asset manager Global Infrastructure Partners.
The IFM Investors owns 25 per cent of Melbourne Airport, 20 percent of Brisbane Airport and 13 per cent of Adelaide Airport, and a stake in Perth Airport, which are all unlisted. Sydney Airport said it would consider “whether the proposal is reflective of the underlying value of the airport given its long-term remaining concession and the expected short-term impact of the pandemic”. The proposal “has been made during a global pandemic which has deeply affected the aviation industry and the Sydney Airport security price”, the company said. The airport operator noted that the “indicative price is below where Sydney Airport’s security price traded before the pandemic”. The stock traded at $9 before the pandemic.
Phenomenally low interest rates are deriving funds’ interest in infrastructure investments for higher yields. ”It’s the right timing to be looking at these assets which have got a 75-year life when conditions are arguably at the bottom,” said a Sydney Airport investor who declined to be named. “It’s opportunistic in that regard, but understandable.”
The purchase offer has an enterprise value of A$30 billion, including debt, and would be beneficial once travel resumes.
The bid is dependent on UniSuper, which holds about 15 per cent of Sydney Airport, agreeing to exchange its equity interest for an equivalent equity share in the consortium’s holding vehicle, rather than cash.
Australia has responded to the pandemic by strictly closing all its borders, not allowing any inbound travelers. This has been catastrophic for the tourism and travel industry. The aviation sector has been the hardest hit. In May this year, Sydney Airport’s International traffic was down more than 93 percent compared to 2019 May. Domestic traffic dell by 39 percent.
If the deal goes through then, it would rank as the eighth-biggest deal globally this year and the second-largest airport purchase, behind the $30.2 billion buyout of Britain’s Heathrow Airport in 2006. According to Reuters, it would be Australia’s largest-ever by enterprise value, equivalent to the $22 billion purchase of mall operator Westfield Group by Unibail-Rodamco in 2017.
The company is Australia’s only listed airport operator. Sydney Airport named Barrenjoey Capital Partners and UBS Group as its advisers on the offer.
