The Northern Advocate

Airport stake may prove appealing

- Grant Bradley

Auckland Council was paid a dividend of $59 million from its stake in Auckland Internatio­nal Airport in the year before the pandemic.

But the 22c per share dividend — one of the highest in the airport’s history — represente­d a yield of 2.6 per cent on its then 22 per cent shareholdi­ng.

A council document from late last year shows that in the super city’s 10-year ownership of the airport the cumulative total return to Auckland Council (including dividends and capital growth) has been 324 per cent.

The council stake equates to about $4000 a ratepayer but the document said there was no clear strategic imperative for ownership or control.

Auckland City Mayor Wayne Brown has proposed selling its shares to raise close to $2 billion to pay off debt.

Auckland Airport said yesterday it was up to investors to make decisions about the future of their shareholdi­ng in Auckland Airport.

“We have and will continue to have a constructi­ve relationsh­ip with Auckland Council as a key Auckland stakeholde­r,” said an airport spokeswoma­n.

The council document from late last year (before Brown became mayor) in advance of the latest annual budget, states: “Holding these shares does not represent a best practice approach to financial investment.”

While investing ratepayer funds in equity markets presents opportunit­y costs, divesting some or all of the shares would present opportunit­ies to make better progress for council strategic outcomes.

Auckland Council’s stake in Auckland Airport (AIA) was reduced to 18 per cent following a capital restructur­ing in 2020 soon after the Covid-19 pandemic devastated air travel.

Forsyth Barr analyst Andy Bowley said there would be strong demand among institutio­ns here and from overseas for the council stake.

While he could not comment on political considerat­ions from the sale of any council stake, he said high quality infrastruc­ture companies such as AIA were sought after.

The lack of any board control would not be a deterrent for an infrastruc­ture investor who were essentiall­y fund managers.

The sale could be through a bookbuild auction.

It states that the council’s shareholdi­ng means:

● No direct rights to appoint Board members

● No super decision rights to control the Board or the activities or business plan of the company

● No ability to block a takeover under a scheme of arrangemen­t.

“There is little scope for conflict between private sector ownership and public objectives in regard to the airport’s business plan, therefore council’s shareholdi­ng does not appear to be linked to any need to influence or control the business plan of AIA.”

Auckland Council’s stake was reduced to 18 per cent following a capital restructur­ing in 2020.

The council document says it didn’t add value as a shareholde­r as it did not have the expertise, did not have the capital to support airport growth initiative­s and didn’t add liquidity to the shares.

If the council chooses to reduce its shareholdi­ng there are a number of options available to it:

● It could look to immediatel­y sell the full shareholdi­ng but such a large shareholdi­ng could not be sold immediatel­y “on market” and would incur transactio­n costs

● It could look to immediatel­y sell a portion of the holding. Reducing the holding to just over 10 per cent would still incur transactio­n costs (potentiall­y less than above)

● It could look to gradually reduce the holding over a period. For example reduce by 8 per cent over a period of three years. This option could, more likely, be done “on market” and avoid transactio­n costs.

After profits were wiped out by the pandemic, the airport in October upgraded its profit guidance for the current year.

It is forecastin­g an underlying after tax profit of between $100 million and $130m in the year ending June, compared with August’s guidance of $50m to $100m.

 ?? PHOTO / ALEX BURTON ?? Auckland Airport’s profit outlook has lifted to between $100 million and $130m in the year ending June.
PHOTO / ALEX BURTON Auckland Airport’s profit outlook has lifted to between $100 million and $130m in the year ending June.

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