Sydney Airport sale tipped to fly eventually

A major stakeholder in Sydney Airport has predicted the consortium seeking to buy the gateway will not give up without a fight.

The Sydney Aviation Alliance is described as a formidable contender for the prized Sydney Airport. Picture: NCA NewsWire/Bianca De Marchi

A major stakeholder in Sydney Airport has spoken out about the $22.3bn takeover bid, saying they expect a sale will eventuate.

As the board met to consider the bid from a consortium of pension and super funds known as the Sydney Aviation Alliance, ClearBridge Investments’ infrastructure portfolio manager Shane Hurst said it was clear the proposal was being taken very seriously.

“I think they want to extract the greatest value they can for shareholders and that may mean really opening up to more offers that may come in,” Mr Hurst said. “Certainly we think there’s value above where the stock is currently trading and there’s been discussions in the media about other bids, so I think the board and management team are weighing that up.”

A bid team led by Macquarie Group was believed to be exploring a rival offer to trump the Sydney Aviation Alliance’s conditional proposal of $8.25 a share.

But Mr Hurst said the three funds that made up the Sydney Aviation Alliance – IFM Investors, QSuper and Global Infrastructure Partnership – were formidable contenders.

“They’re airport owners. They know airports extremely well, they know airport regulation extremely well,” he said.

“When a group like that bids on such a strategic asset you could expect them to have dotted their i’s and crossed their t’s.”

Morgan Stanley equity research analyst Rob Koh shared Mr Hurst’s view of the consortium, and the likelihood it could be a drawn-out negotiation.

Speaking at the CAPA Centre for Aviation forum on Wednesday, Mr Koh said a complicating factor was IFM’s stakes in Melbourne and Brisbane Airports, which would preclude the firm from taking a sizeable share of Sydney as well.

“You can only own 15 per cent of Sydney Airport if you also own less than 15 per cent of any of Perth, Melbourne or Brisbane Airports,” Mr Koh said.

“IFM does own more than 15 per cent of Melbourne and Brisbane Airports, which leads to the question of ‘what are they doing?’.

“They couldn’t possibly not have thought of this so there must be a set of plans on this front, so it may be there are a series of further airport transactions as a result of this.”

Since the start of the Covid crisis, Sydney Airport’s passenger numbers had plunged more than 80 per cent and remained in the doldrums as a result of state border chaos, and the city’s extended lockdown.

In 2020, the airport reported a full-year loss of $145m, in a half-a-billion-dollar reversal of 2019’s result.

Despite the challenges facing the airport and other international gateways, Mr Hurst said they were still considered very desirable infrastructure assets for investment funds.

“They are essential services, they have long-term value and they’re not subject to the business cycle which makes them very, very good long-term investments for long-term owners of assets,” he said.

“They generate very high-quality cash flows and tend to generate very stable dividends over a longer period of time.”

Since the takeover bid was revealed on July 5, sending shares in Sydney Airport soaring 35 per cent, the gains have been maintained on the ASX.

On Wednesday the airport’s shares closed down just 0.5 per cent at $7.80, a mere 5.5 per cent below the Sydney Aviation Alliance offer.