Auckland International Airport Ltd (AIAL) has advised North Queensland Airports (NQA), which comprises Cairns and Mackay airports, that it will offer its 24.6% investment in NQA for sale to existing investors, for AUD370 million (USD294 million). The holding was originally acquired from Westpac Bank in Jan-2010.
All existing NQA investors are entitled to purchase their pro rata share of AIAL’s interest, while two investors, Perron Investments and The Infrastructure Fund, have agreed to accept up to the entire offer, being all of AIAL’s interest.
It is not an unanticipated development. In Aug-2017, responding to shareholder questions about the company’s shareholding in NQA, its CFO had stated “Our current business strategy is focused on growing New Zealand travel, trade and tourism… as such, while North Queensland Airports is a quality asset, it is not integral to our current business strategy”. The message in the statement made on 16-Jan-2018 is much the same.
Apart from the two Australian airports, AIAL has an interest in Queenstown Airport on New Zealand’s South Island, and a gateway to the adventure vacation scene there.
That interest was acquired in Jul-2010, just six months after the NQA deal and at a time when wider investments were in fashion. That is unlikely to join the disposal list, since that airport – with its 1.8 million passengers in 2016 – is “integral” to New Zealand tourism.
Passenger growth there dipped a little in 2017, but remains strong.
Queenstown Airport annual traffic: passenger numbers from 2012 to 2017
In contrast, the Cairns Airport, while it is almost three times bigger, has been growing at about half that rate. Mackay Airport, about half the size of Queenstown, has suffered from heavy traffic falls, though it seems to have brought them under control in 2017. Passenger growth is not known to be particularly the determining factor in the disposal.
The two investors that will take the AIAL stake are not new to the business. The Perth-based Perron Investments has been an investor in the Cairns and Mackay airports since 2008, and subsequently bought into Adelaide Airport. Perron is the privately owned investment vehicle of Australia’s 10th richest individual, Stan Perron.
The transaction that took Perron into Cairns and Mackay airports came at the same time as the investment by Hastings Industry Fund. There has, however, been a material change of circumstances there.
At the end of Aug-2017 Hasting Fund Management lost control of The Infrastructure Fund, when that organisation decided at an extraordinary general meeting to “fire” Hastings as its asset manager and find a new one that will charge lower fees and offer better alignment with unit holders. Hastings accordingly lost control of AUD2.1 billion (USD1.6 billion) of infrastructure under its care. The move coincided with two failed attempts by the owner Westpac to sell Hastings.
Hastings will remain as the manager for 12 months from Sep-2017, during which time there will be a search for a new management team, and it is understood that the target is a manager that will charge less than the 1% of Hastings.
The Infrastructure Fund began life in Jun-1998, investing in the state of Queensland and taking stakes in the Gold Coast Airport and North Queensland Airports, before then in Perth Airport and a Sydney desalination plant. It tends to favour riskier assets and, in turn, expects higher returns – of the order of 10%.
The deal is not ‘cut and dried’. Under an existing pre-emption agreement North Queensland Airports’ biggest investor, IIF Cairns Mackay Investment Ltd, a fund advised and run by JPMorgan Asset Management, may opt to take up its share of AIAL’s stake. If not, it falls to Perron and The Infrastructure Fund.
Ownership of airports in Australia is complex, and often involves one or more infrastructure funds, some of which have also become international investors in the sector.
Following is a summary of the breadth of ownership in airports.
Australian funds/managers investing in airports