Auckland Airport is bouncing back strongly from the pandemic. Photo / NZME
Auckland Airport is bouncing back strongly from the pandemic. Photo / NZME
Auckland Council was paid a dividend of $59 million from its stake in Auckland International Airport in the year before the pandemic.
But the 22c per share dividend – one of the highest in the airport’s history - represented a yield of 2.6 per cent on its then 22 percent shareholding.
A council document from late last year shows that in the super city’s 10-year ownership of the airport the cumulative total return to Auckland Council (including dividends and capital growth) has been 324 per cent.
The council stake equates to about $4000 a ratepayer but the document said there was no clear strategic imperative for ownership or control.
Today Auckland City Mayor Wayne Brown has proposed selling its shares to raise close to $2 billion to pay off debt.
Auckland Airport said today it was up to investors to make decisions about the future of their shareholding in Auckland Airport.
“We have and will continue to have a constructive relationship with Auckland Council as a key Auckland stakeholder,” said an airport spokeswoman.
The council document from late last year (before Brown became mayor) in advance of the latest annual budget, states: “Holding these shares does not represent a best practice approach to financial investment.”
While investing ratepayer funds in equity markets presents opportunity costs, divesting some or all of the shares would present opportunities to make better progress for council strategic outcomes.
The document was prepared in advance of the 2022-23 annual budget to provide a framework for assessing the council’s strategic assets. Auckland Council’s stake in Auckland Airport (AIA) was reduced to 18 per cent following a capital restructuring in 2020 soon after Covid-19 devastated air travel.
Forsyth Barr analyst Andy Bowley said there would be strong demand among institutions here and from overseas for the council stake.
While he couldn’t comment on political considerations from the sale of any council stake, he said high quality infrastructure companies such as AIA were sought after.
The lack of any board control would not be a deterrent for an infrastructure investor who were essentially fund managers.
The sale could be through a bookbuild auction.
Shane Solly, a research analyst and portfolio manager at Harbour Asset Management, said the was investor appetite for utilities although a sale of the full block of shares could be discounted.
He said although AIA had recovered strongly from pandemic lows, there was still uncertainty around how quickly air capacity will return to pre-pandemic levels and how many airlines will return.
Auckland Council's stake in the airport is 18 per cent. Photo / Brett Phibbs
The council officers’ document says its shareholding means:
No direct rights to appoint Board members
No super decision rights to control the Board or the activities or business plan of the company
No ability to block a takeover under a scheme of arrangement.
“There is little scope for conflict between private sector ownership and public objectives in regard to the airport’s business plan, therefore council’s shareholding does not appear to be linked to any need to influence or control the business plan of AIA.”
Auckland Council’s stake was reduced to 18 per cent following a capital restructuring in 2020,
The council document says it didn’t add value as a shareholder as it did not have the expertise, did not have the capital to support airport growth initiatives and didn’t add liquidity to the shares.
If the council chooses to reduce its shareholding there are a number of options available to it:
It could look to immediately sell the full shareholding but such a large shareholding could not be sold immediately “on market” and would incur transaction costs
It could look to immediately sell a portion of the holding. Reducing the holding to just over 10 per cent would still incur transaction costs (potentially less than above)
It could look to gradually reduce the holding over a period For example reduce by 8 per cent over a period of three years. This option could, more likely, be done “on market” and avoid transaction costs.
After profits were wiped out by the pandemic, the airport in October upgraded its profit guidance for the current year.
It is forecasting an underlying after tax profit of between $100 million and $130m in the year ending June, compared with August’s guidance of between $50m and $100m.
Jarden analyst Andrew Steele said in a note last week the airport was entering a big capital spending period.
“Over the next 10 years we expect AIA to spend $6b on aeronautical capex. We expect the scale of this investment to lead to a fundamental shift in earnings composition compared with the 10-years pre-Covid.”
Compound annual growth of underlying aeronautical earnings were forecast at 9.7 per cent to 2032.
Significant growth in net debt is coming, said Steele.
It would grow from $1.5 to $7.3b over the next 10 years.
