Brazil set to raise the ‘for sale’ signs for Infraero, but is anyone watching?

The Brazilian state airport operator Empresa Brasileira de Infra-Estrutura Aeroportuaria (Infraero) has said the company is preparing the sale of 49% of its capital through an Initial Purchase Offer (IPO) valued at BRL14 billion (USD3.6 billion). Its president Antônio Claret de Oliveira says the IPO will only be presented after Brazil’s federal elections scheduled for Oct-2018.


Summary:

  • Brazilian state airport operator Infraero is once again being prepared for a potential IPO;
  • The company is preparing the sale of 49% of its capital through an Initial Purchase Offer (IPO) valued at BRL14 billion (USD3.6 billion);
  • While Infraero retains a significant portfolio of airports, it is not what it was, having lost much influence over the country’s primary airports;
  • Having already commenced initial tranches of airport privatisations, in hindsight another version entirely of privatisation might have been a better option in Brazil.

At least that offers the glimpse of a date; the Infraero IPO has been talked about for years without much substance. The fate of Infraero, which still comes under the umbrella of the Defence Ministry, has also been widely discussed as its influence has waned following the various concession procedures on some of the leading Brazilian airports.

It has shrunk in size as well as gravitas. It is enlightening that the USD3.6 billion valuation is exactly the same as the projected one for India’s GMR Airports, which is currently involved in four airports, three in India and one in The Philippines. Infraero’s portfolio – all in Brazil, it never became involved with foreign airports which was under consideration when the domestic concession procedure began – runs to over 60 of them, including most of the concessioned airports.

MAP – The Infraero airport portfolio remains considerable and spreads throughout BrazilSource: CAPA – Centre for Aviation

It was this time last year when the Transport Minister said the government was considering a potential IPO for Infraero and that a share issue, if conducted, could see the state relinquishing control of the company.  Alternatively, he said, Infraero could be downsized or even “terminated”. The same minister later went on to say there would be no privatisation of Infraero. The indecision is palpable.

On top of that, some of the proposed concession deals were halted, such as Rio’s Santos Dumont airport, which was left under the administration of Infraero on the basis that without that asset Infraero would have no profitable ones!

There has been much talk about what will become of Infraero. As early as Feb-2017 the Senate announced that the Constitution Commission was analysing the need for Infraero’s continuing participation in national airports at all. Thereafter the Transport Minister remained against any sort of privatisation of Infraero, contrary to the suggestion of a consultant that it should be privatised “like AENA” in Spain (it is a similar size in terms of the number of airports) and, as in the case of Mexico, it had anchor airports in São Paulo, Rio de Janeiro, Belo Horizonte and Brasilia on which to “hang” a sectoral privatisation scheme.

But the privatisation-of-individual-airports-by-concession method, in a series of tranches, was introduced instead; one which left Infraero with 49% of the equity of the concessioned airports and the threat that it might even lose that.  The government started to look at ways to dispose of Infraero’s shares in some of these larger airports.

Despite the fact that the concession process has not worked out as well as it might have – some of the concessionaires would like to exit if they could – it is not possible to turn back the clock. Moreover, the next tranche is looming, mainly of secondary level airports by ‘block’ (although there are some larger ones like São Paulo Congonhas, Cuiaba, and Recife Guararapes) and anchored, á la Mexico, each on one larger one (or ‘steak with bone’ as the Brazilians call it).

Infraero is not the force it was, having been weakened by the concession process as Sampson was having his hair cut off. The IPO valuation is clear evidence of that. Might it have been better simply to privatise Infraero in the same way as AENA in Spain right at the start, by way of an IPO linked to trade sales to cornerstone investors? Probably.