AIA sale could woo consortium vying for Sydney Airport

The sale of a key stake in Auckland International Airport (AIA) could attract interest from one of the consortiums currently vying for control of Sydney Airport, a local analyst said today.

Auckland City councillors last night voted 11-7 in favour of selling the council's 25.7 per cent holding -- equating to 108 million shares -- in order to reduce debt.

Arthur Lim, head of equities at Macquarie Equities, said any of the three consortiums bidding for Sydney's Kingsford Smith Airport would be a logical buyer for the AIA stake.

"Potentially any of the bidders for Sydney Airport, whether they're successful or not, could be interested in the Auckland City Council's stake in Auckland Airport," Mr Lim told NZPA.

"You've got three bidders there who have done a lot of work in terms of looking at the airport industry, and have built up the consortium and the financing that is required to buy the asset."

The three consortia understood to have lodged bids for the Sydney Airport are Connect -- comprising of ABN Amro, National Australia Bank, Egis, Vancouver Airport, Challenger International, Babcock & Brown, Bank of America Corp, HSBC and Westdeutsche Landesbank; Sydney Gateway -- made up of Westpac Bank, AMP, Deutsche Bank, Cheung Kong Holdings, Canada's CDP and British airport operator BAA Plc; and Southern Cross -- Macquarie Bank Ltd, Commonwealth Bank of Australia and Germany's Hochtief AG.

While the AIA stake, worth around $NZ500 million at current prices, was small fry in comparison to the $A4.5 billion ($NZ5.28 billion) the Sydney sale is expected to fetch, it was still an attractive business, Mr Lim said.

"The airport is a good business and that is recognised internationally."

Globally, airports made an attractive investment based on their monopoly status, their position as a growth business in the rapidly expanding international aviation industry, and the ability to milk further profits out of associated businesses like airport-based shopping and service centres, Mr Lim said.

"Internationally, as income levels go up and people have more time for leisure, we're just going to see more travel," he said.

AIA's ability to weather the effects of September 11 was proof of that, he added.

Shares in AIA were trading down 5 cents at $4.43 this morning, adding to yesterday's 10 cent fall.

Speculation in the market was that investment bank Credit Suisse First Boston -- appointed in April to report on the best way to proceed with the sale of the council's stake -- favoured a share placement, rather than a trade sale.

Share placements, to institutional and retail investors, are usually made at a discount to the current price, while a trade sale -- in which one buyer makes a full or partial takeover for the company -- generally attracts a premium, Mr Lim said.

Under Takeovers Code rules a bidder seeking more than 20 per cent of the company would be required to make a full bid for all the outstanding shares or a partial offer taking the holding to at least 50 per cent.

ABN Amro Craigs retail equities adviser Nigel Scott aid either a takeover or a sale of the shares on market would be well received.

"It's a good stock, a good story, and I think it will be pretty well supported whichever way it went.

"There's no harm in spreading shares far and wide, it's a great New Zealand listed company, monopolistic-type activity, and it's not cheap either."

Mr Lim agreed.

"If Auckland City Council goes through the route of selling shares to institutions and the public it would have to be done at a discount to the market price.

"Short-term, that would be a negative for the stock, but longer term we have got a valuation well in excess of the current market price for AIA -- so there are no particular concerns in that area."

Macquarie Equities has a price target on the stock of $4.80 -- around 8 per cent higher than its current level.

The last significant shareholder to sell out of AIA was Singapore's Changi Airport Enterprises. Changi sold its 7.1 per cent stake to institutions in December at $3.58 a share, compared with a market price of $3.80 -- sending the share price into a brief downward spiral.

The stock has proved a winner for shareholders willing to sit tight, however, considering it listed at just $1.80 in 1998.

"One can see the sale of a big line of stock as an opportunity or a threat," Mr Lim said.

"I've always seen it as an opportunity because while it does create short-term price weakness, prices do always recover back to fundamental value."

The airport is considering a $212 million return of capital to shareholders later this year, of which the council would receive about $54.5 million.

AIA is New Zealand's largest airport, handling about 70 per cent of international arrivals and departures.

Another local body, the Manukau City Council, owns 9.6 per cent of the airport.

- NZPA