Investment banker Malcolm Turnbull has options on Sydney airport

Malcolm Turnbull can hang tough in his talks with Sydney Airport, knowing billions of dollars can easily be tapped.

Prime Minister Malcolm Turnbull can hang tough in his talks with Sydney Airport, safe in the knowledge that billions of dollars of infrastructure investment for an alternative bidder for second Sydney airport could be tapped if he said the word.

While Sydney Airport CEO Kerrie Mather and her predecessors have done a great job for their shareholders, the congestion-weary, sticker-shocked users of Australia’s busiest airport might have a different view.

Any existing airport operator is going to be concerned about cannibalising its current business and maximising value for their shareholders, or minimising the downside from a potential competitor.

But a new consortium would be hungry to make a second airport a winner for Sydney’s west, competing fiercely with the ageing Kingsford Smith.

Much has happened since the Howard government put Sydney Airport up for sale in the early 2000s, and was more than pleased at the $5.4 billion put up at the time by the Macquarie-backed consortium in 2002.

The business of private infrastructure and airport investing around the world has taken off, with a large global pool of privately owned airport operators as well as sophisticated, big-ticket infrastructure investors now in the mix.

There is now a significant pool of capital both within Australia and overseas that would be all too willing to be part of a consortium to build a second Sydney airport.

Potential investors are keeping their heads down while Turnbull, a Sydney Airport frequent flyer himself, faces down the monopolist.

It may well be that they do thrash out a deal for Sydney Airport to take up its option.

But should they fail to reach a deal, Turnbull only has to fire the starting gun and savvy infrastructure investors will be putting together deals.

The list is long, but they could start with the $125bn Future Fund, which has stakes in airports in Melbourne, Perth, Launceston and Gatwick.

Then there is the $500bn industry super fund sector, which is perpetually hungry for new infrastructure investments.

The $70bn IFM investment group is an experienced investor in airports, including those in Adelaide, Perth, Melbourne, Brisbane, the Northern Territory and Vienna, and the Manchester Airport Group.

Throw in the Queensland Investment Corp and the array of Canadian pension funds who love nothing better than a visit to sunny Australia.

Then there is the $40bn New York-based Global Infrastructure Partners fund that works with the Future Fund and owns Gatwick and Edinburgh Airports, and was involved in recent bids for the Port of Melbourne and Australian freight rail operator, Pacific National. It sent a representative to the Future Fund’s recent 10th anniversary dinner in Melbourne, which Turnbull attended.

Then there is Spanish infrastructure company Ferrovial which owns four airports in Britain — Heathrow, Glasgow, Aberdeen and Southampton.

The company has spent the past few years getting a new foothold in Australia, bidding for the company formerly known as Transfield, which changed its name to Broadspectrum. It hung in there and the $800 deal was finalised mid-year.

Then there are any number of European airport-owning groups, such as the Vinci group in France, as well as cash-rich Chinese investors keen for more offshore infrastructure.

A new airport in a major city in a developed country is a rare bird indeed.

In Britain a few years ago, competition regulators broke up the British Airport Authority’s hold on the British market, paving the way for new investors including the Australian funds.

The global investor hunger for good-quality infrastructure assets in Australia has been evident in the good deals struck for the sale of assets in NSW and the Port of Melbourne.

Only a few months ago, NSW Premier Mike Baird found himself in an embarrassing situation when federal Treasurer Scott Morrison knocked back two Chinese bidders for a part-interest in NSW electricity company Ausgrid.

Other investors, including the industry fund sector, had kept out of the deal, knowing they could not put up quite as much money as the two Chinese-backed groups. (More accurately, one Chinese-backed and another backed by Hong Kong’s Li Ka-shing, who has been a longtime investor in Australia.)

Baird’s advisers did a quick trip to North America to talk to a new round of investors who began looking at the deal but then he got nervous that the Foreign Investment Review Board might nix any deal with a majority foreign investment.

So who was he gonna call?

Within weeks, the Melbourne-based $100bn Australian Super and IFM got together with a $16bn “unsolicited proposal” that was quickly signed, sealed and delivered.

Baird’s banking background has helped in doing infrastructure deals for his state.

But Turnbull clocked up far more impressive investment banking credentials before entering parliament.

As a young investment banker, Turnbull famously jumped on a plane and signed an agreement with the John Fairfax media group’s US junk bond holders when the company was up for sale in 1991. His stunning deal swung the auction in favour of the Conrad Black and Kerry Packer-backed Tourang syndicate.

If he wanted to start with a fresh sheet of paper and a new consortium, Turnbull could call up the guest list of local and global fund managers at the celebration of the 10th anniversary of the Future Fund in Melbourne recently.

There is an important deal to be done here. So, Malcolm, who ya gonna call?