CreditSights: NAIA consortium faces negative profit outlook

THE 82.16% revenue share offered by the San Miguel-led consortium to the government could lead to lower annual profits from the Ninoy Aquino International Airport (NAIA) even after finishing expansion works, financial research firm CreditSights said.

“We are surprised at the high proposed revenue share of 82.16%, which we expect to result in modestly negative annual EBITDA (earnings before interest, taxes, depreciation, and amortization) generation from the airport even post the expansion works,” the financial research firm said in its outlook report for San Miguel Corp. (SMC), e-mailed to reporters on Monday.

“We are alarmed that the revenue share that SMCC [SMC SAP & Co. Consortium] bid for and is willing to pay to the government is much higher than the bids placed by its competing bidders,” it added.

This move could suggest San Miguel’s “strong desire” to capture a large share of the air traffic market in Metro Manila, as its infrastructure unit is also constructing an international airport in Bulacan, CreditSights said.

“We expect NAIA to complement SMC’s greenfield international Bulacan Airport that is slated to be completed in 2027, thereby driving revenue and cost synergies.”

The winning consortium for the NAIA bid consists of San Miguel Holdings Corp., RMM Asian Logistics, Inc., RLW Aviation Development, Inc., and Incheon International Airport Corp. (IIAC).

The other two qualified bidders, GMR Airports Consortium and Manila International Airport Consortium, have proposed revenue shares of 33.3% and 25.9%, respectively.

The 15-year concession agreement for NAIA can be extended for a further 10 years based on the consortium’s performance.

The SMC-SAP consortium has estimated an investment of around P122.3 billion for its capital expenditures (capex) over the duration of its concession agreement, according to the Department of Transportation.

The credit research provider said that SMC will likely fund its share through a mixture of 70-30 debt and equity.

It also said that the proposed investments of the SMP-SAP group will have little impact on SMC’s cash flow, as the capex will likely be divided among the members of the consortium.

Under the agreed concession, the group will make an up-front payment of P30 billion and an annuity payment of P2 billion, in addition to the revenue share.

“We anticipate the project to have a manageable impact on SMC’s credit profile, given the project capex will likely be split among the consortium partners and over a potentially five-year period, which eases cash flow pressure,” CreditSights said.

“Based on these assumptions, we estimate SMC’s pro forma net leverage to worsen modestly to 7.8x-8x which we see as manageable,” it also said.

Ramon S. Ang’s SMC holds a 33% stake in the consortium, South Korea’s IIAC, the operator of Incheon International Airport, has a 10% share, while RMM Asian Logistics and RLW Aviation hold a 30% and 27% stake, respectively.

Data available from the Securities and Exchange Commission showed that RMM Asian Logistics was incorporated in December 2023, while no data was available about RLW.

“We are… unclear about the background/capabilities of two of SMCC’s other partners, RMM Asian Logistics and RLW Aviation. Though SMC in its press release did not disclose or refute if the two entities are in any way related to SMC, we cannot rule out the possibility that they are related parties of SMC. If it were true, then SMC will incur a higher proportion of capex/higher debt for the airport upgrade, than what we have assumed,” CreditSights said. —