FIRB may be stumbling block for IFM consortium’s Sydney Airport bid

Sydney Airport is considered a vulnerable point of entry to Australia. It is the gateway to the largest city and located next to the country’s main port. Picture: NCA NewsWire/Flavio Brancaleone

It might seem like radio silence on the Sydney Airport front since it rejected a $22.3bn buyout proposal from an IFM-led consortium, but there continues to be plenty of chatter on the sidelines about obstacles that exist for a transaction.

There are experts who believe a major point of focus when it comes to the attempt by IFM Investors, QSuper and Global Infrastructure Partners to buy the airport operator after offering $8.25 per share is the Foreign Investment Review Board.

The FIRB is taking a longer time assessing possible transactions and increasingly a tougher stance. The reasons include a backlog of cases and also that it is giving more consideration to each transaction at a time of booming M&A in Australia. National security remains a point of focus amid the pandemic and tensions with China remain high.

While IFM itself is Australian, it has investors that are from parts of the world such as the Middle East, and the thinking now is that investors within the funds are becoming of increasing interest to FIRB.

This is as it takes into account matters important to the Five Eyes Alliance of the US, the UK, Canada, Australia and New Zealand.

Sydney Airport is considered a vulnerable point of entry to Australia. It is the gateway to the largest city and located next to the country’s main port.

Weighing on the minds of the regulator will be the decision by FIRB to approve the purchase of a 99-year lease of the Darwin Port by China’s Landbridge in 2015.

The Darwin port lease followed and agreement by Julia Gillard and Barack Obama that there would be a permanent and rising US marine rotation through Darwin for long-term training and exercises, as part of greater US-Australia military co-operation across Northern Australia.

But now as tensions between Australia and China are running high, the port decision is seen as an unfitting one and controversial.

Former head of the Australian Security Intelligence Organisation David Irvine was later appointed chairman of the Foreign Investment Review Board in a move to give FIRB a clear national security dimension.

Many in the market believe the IFM-led consortium will likely lift its bid but there are some doubts as to whether it will go as high as $9 per share – the amount discussed in the market as what the board might be after.

There has been talk that IFM has been in discussions with Australian investors in the past two weeks to secure more funds for a possible sweetened deal.

Before the pandemic, Sydney Airport had been trading at $8.94 per share but has since raised about $2bn in equity. The shares on Monday closed at $7.67.

It is worth remembering that IFM already owns 25 per cent of Melbourne Airport and 20 per cent of Brisbane Airport and will not be able to own more than 15 per cent of Sydney if its other holdings remain, according to Macquarie analysts.

GIP would not be allowed to own more than 49 per cent under foreign ownership rules.

UniSuper already owns 15 per cent of the $21bn Sydney Airport and has agreed to roll into the offer should it be accepted.