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An innovative financial deal offers a blueprint for the future
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| 26 May 2000 |
An innovative financial deal offers a blueprint for the future
By Jenny Beechener
The Chinese government raised close to US$400 million from the sale of
Beijing Capital International Airport (BCIA) in February this year, the
first mainland airport to be listed on the Hong Kong stock exchange. The
sale was unique in combining an international public offering (IPO) with
the introduction of a strategic partner.
Aéroports de Paris (ADP) acquired 9.9% of BCIA for US$125 million
together with a seat on the management board. In addition to its strategic
equity stake, ADP entered into a five-year consultancy agreement with
BCIA and will provide various advisory services to help maximise aeronautical
and non-aeronautical revenues, improve service delivery, institute training
programmes and help develop hub activities. The Chinese government retains
65% equity in BCIA, with ABN Amro Ventures acquiring 8%, and institutional
and retail investors hold the remaining 17%. The proceeds will go towards
refurbishment of Terminal 1, taxiway and runway upgrade work, and repayment
of Terminal 2 debt following its completion last year. The airport plans
to reduce debt to 20% of equity by repaying bank loans of HK$1.46 billion
(US$176m).
The sale coincided with a volatile period for stock markets worldwide.
The Hong Kong market was especially weak, with the Hang Seng Index falling
more than 8% in January. BCIA shares, first listed at HK$1.87 have since
stabilised at HK1.50. ABN AMRO, global co-ordinator, lead arranger and
bookrunner on behalf of the government and BCIA for the placement of shares
to institutional and retail investors, says that the shares have generally
moved in line with the stock market which has fallen 20% since the beginning
of the year. However, the shares represented a premium of 88% above the
price/earnings ratio of the H share index (the government share listing)
when floated and have since out-performed other H share companies.
“The best way to value an airport is to look at enterprise value/earnings
before interest, tax, depreciation and amortisation (EV/EBITDA),”
says Ranjit Murugason, director and head of ABN AMRO’s corporate
finance transport team. “When you look at Australia, the trade sales
achieved 18–19 times EV/EBITDA. Historically IPOs have achieved about
eight times.” IPOs tend to be priced at lower EV/EDBITDA multiples
since the sale of shares to investors does not secure the same level of
control as a 100% trade sale.
The BCIA IPO price represented a multiple of 7.5 times EV/EBITDA, and
16 times price/earnings. This compares with an average trading multiple
at the time of the Beijing deal for listed airports (Aeroporti di Roma,
Auckland International, BAA, Copenhagen, Malaysian Airports, Vienna and
the TBI Group), of 9.3 times EV/EBITDA, and 19.3 price/earnings.
In addition to the bank’s role as global co-ordinator for the Chinese
government, ABN was retained by BCIA as its financial advisor to help
select a strategic partner to provide operational and management advice
and support BCIA in its transition from state to private/public ownership.
Towards the end of last year, BCIA shortlisted ADP, BAA and Singapore
Changi to conduct due diligence and to lodge binding offers.
The selection of ADP recognised several criteria including its ability
to meet the government’s target that BCIA be the first IPO of the
new millennium. ADP agreed to acquire a 9.9% stake in the company at a
31% premium to then undecided IPO price, and to maintain at least 5% shareholding
in BCIA for five years. ADP’s vice president of strategy and commercial
policy Alain Falque joined the BCIA board. ADP is providing technical
and strategic operational and management support for an annual fee of
approximately US$2 million.
“Several governments have completed trade sales,” says Murugason,
“But this is the first transaction where an airport operator has
subscribed to an IPO, immediately prior to the IPO, at a fixed premium
to whatever price is achieved at the time of flotation.” He adds,
“ADP was extremely astute. It recognised that trade sales had been
achieved at much higher multiples than IPOs.” Beijing is a modern
asset, and delivered a modern terminal on schedule in October last year.
“The strategic consultancy agreement was structured in such as way
that transfer of skills, control and sovereignty issues were balanced
in everyone’s interest. One party benefits from the new skills, equity
infusion and the retention of control, the other from access to a new
market, a strong investment and management cooperation. The BCIA management
team found a partner to support its vision.” From the government
standpoint, Beijing was the first major Chinese IPO to come to the market
for more than half a year. A number of primary offerings were pulled in
the last quarter of 1999, and the government was determined to adhere
to the schedule. “We may have raised higher proceeds had markets
remained stable,” says Murugason, who expects other airports to follow
on from Beijing, such as Shanghai and Guangzhou. The bank has received
enquiries from airports interested in the Beijing model elsewhere in Asia
Pacific as well as Latin America.
At the time of the Beijing sale, the stock market was heavily focused
on technology stocks. “Utilities grow at relatively modest rates
of 5–10% a year, whereas new technology IPOs were promising explosive
growth. Investors just switched at the end of year.” Airport shares
also fell following the abolition of duty free last year, and the drop
in European stocks had a ripple effect on airport stocks worldwide.
“Governments may consider a strategic partner in order to enhance
and give credibility to an IPO. If an asset is in a reasonable state and
does not require massive capital expenditure, or is close to completion
stage in its capital development programme, it could make an attractive
candidate for an IPO,” says Murugason. This could apply to smaller
airports in Europe such as Munich, Dusseldorf, Dublin, Brussels and some
Scandinavian airports as well as airports in Asia. “The strategic
partner technique is going to be implemented in places as far afield as
Sydney to some European airports, which have realised the benefits of
the strategic investor. The challenge is to do it without disenfranchising
local management and while meeting government objectives.
Rising shares in the airport business
From its role as lead advisor to the Australian government on the trade
sale of Australia’s airports in the early 1990s, ABN AMRO has moved
rapidly to build its reputation in the airport sector. The company acquired
BZW in Australia and New Zealand in late 1997, after the sale of Melbourne,
Brisbane and Perth under the government’s privatisation programme,
and kept in place the same team to handle the sale of an additional 14
airports. Since then, the bank has advised Singapore Changi on the purchase
of a strategic 8% stake in Auckland International Airport, managed the
sale of 20% of Venice Marco Polo Airport to a financial group led by Generali/Banca
Antonveneta, and managed the US$450 million eurobond issue for Aeroports
de Paris amongst other advisory mandates in Latin America, Germany and
New Zealand.
The bank had two separate roles in the flotation of Beijing shares: one
as financial advisor of Beijing Capital International Airport on the introduction
of a strategic partner, and one as global co-ordinator, lead manager and
sole bookrunner for the international public offering made by the Chinese
government.
Head of transport corporate finance in Europe, Ranjit Murugason says,
“We are appearing as a force in the sector. We have participated
in equity issues for every single international listed airport, retained
our brokership for for BAA since its privatisation and recently won TBI
as a broker account. Credit Suisse First Boston & Warburg have a new
competitor and we are now winning significant market share in this sector
in the advisory, equity capital markets and debt finance.” On the
back of the role as lead advisor to the Australian government, ABN has
developed a successful merger and acquisition business. Current roles
include advising Frankfurt Airport and Bechtel on opportunities in Peru,
to Vancouver International Airport Authority in Uruguay, and advisor to
Schiphol and Frankfurt on the joint bid for a residual stake in Aeroporti
di Roma, and to Melbourne Airport on its Aus$1 billion debt restructuring.
Aeropuertos Argentina has just selected ABN to be the lead advisor/arranger
of a US$1 billion recapitalisation and refinancing package for the country’s
33 airports.