What Scape might do next

Global student accommodation group Scape is eyeing an investment in IDP Education. Picture: Mark Stewart

Global student accommodation group Scape is eyeing an investment in IDP Education, with suggestions late last year that a $2 billion stake in the listed student placement services company could soon be offered up for sale.

The attraction of IDP for Scape is that it can integrate the business into its existing operations, becoming a provider of student education, accommodation and lifestyle services.

Education Australia, a company owned by 38 Australian universities, owns a 50.1 per cent holding in IDP Education, which is listed on the Australian Securities Exchange with a market value of about $6bn.

The Covid-19 virus and international travel restrictions linked to the global outbreak has taken its toll on universities in Australia that rely heavily on revenue from international students.

Education Australia announced to the market in October that it may realise capital for its shareholders.

Sources say that Education Australia had hoped to sell a stake last year worth about $2bn and it is understood to be taking advice from an investment bank.

IDP Education provides student placement services to enrol into universities, schools and colleges.

The company, which operates globally, offers university and course guidance, visa application and scholarships assistance and pre-departure support services.

It offers bridging courses to international students hoping to enrol in Australian university courses and helps drive increasing enrolments in Australian universities.

The main activities of Education Australia, meanwhile, are to promote the Australian university sector and its internationalisation.

Some suspect that the valuation of IDP Australia would be less without the Australian universities as stakeholders.

It has more than 100 offices in 31 countries and 550 counsellors, partnering with the University of Cambridge ESOl Examinations and the British Council for IELTS tests.

One challenge is valuing the company, given the complexity of the shareholding agreements.

Since IDP Education has been offering services to other international universities in Canada, Ireland, the United Kingdom, the United States and New Zealand, experts say that ownership by the Australian universities is not so critical.

Another factor weighing on value is the growing number of pathways programs being launched in China which would have an impact on the IDP Australia revenue.

IDP Australia posted a $70.4m net profit after tax and amortisation for the 2020 financial year, up three per cent on the previous corresponding period.

The company had a $307m cash balance at June 30.

IDP Australia chief executive Andrew Barkla said although many international students’ plans were on hold due to travel restrictions, demand for international education remained strong.

In Australia, Scape - the largest owner-operator of off-campus purpose-built student accommodation - has 24 buildings and 13000 student accommodation beds.

Last year, it purchased rival student accommodation provider Urbanest for $2.2bn and Atira Student Living platform.

Scape’s bedrooms are mostly self-contained studio rooms akin to hotels and serviced apartments, but it also offers other facilities for students’ mental and physical wellbeing.

While Scape’s student accommodation occupancy has fallen to about 50 per cent from about 90 per cent before the pandemic, with most students signing up annually, sources close to the company say that its 27 lenders across its portfolio have been strongly supportive.

The company was not in breach of any of its debt covenants.

However, a source close to Scape concedes the business is in for a challenging year, with a number of students unable to afford staying abroad and forced to return to their home countries.

National cabinet is expected to deliver a plan on the return of international students when it meets on February 5.