THE BUYING GAME
Joe Bates takes a closer look at the growing airport portfolios of a handful of the region’s biggest airport operators.
The Asia-Pacific region arguably boasts some of the best and most successful airport operators on the planet, and an increasing number of them are now looking overseas to expand their portfolios.
While the list of Asia-Pacific-based airport operators with equity stakes in airports outside of their country’s borders may still be quite small compared to Europe and even North America, it contains some of the biggest names in the region and is growing year-on-year.
They include Singapore Changi subsidiary, Changi Airports International (CAI); Malaysia Airports Holdings (MAHB); Incheon International Airport; and Indian airport operators GMR and GVK.
GMR is the most recent winner of a new concession, only assuming responsibility for operating Mactan-Cebu International Airport in the Philippines, in partnership with local company Megawide Construction, on November 1 last year.
The GMR/Megawide Construction Corporation’s winning bid of $365 million for the 25-year concession was around 3% higher than the second highest tender and, as part of the terms of the deal, it has pledged to upgrade the gateway to allow it to accommodate up to 30mppa.
The first phase of this involves the construction of a new Terminal 2 that will allow the existing terminal to be renovated and used purely as a domestic terminal.
The new operators also plan developing other facilities across the Mactan-Cebu site taking its expected capital expenditure to around $740 million during the course of the concession.
GMR Infrastructure’s president and CFO, Sidharath Kapur, however, believes that this will be money well spent as GMR predicts passenger growth to rise from around 7mppa today to 28mppa over the next quarter of a century.
“The airport has great potential, particularly when it comes to opportunities to increase its non-aeronautical revenues as today’s lack of facilities simply don’t encourage passengers to spend money,” says Kapur.
“When you see how many big-spending passengers travel to the Maldives from Korea, China and Japan, there is so much that can be done to change this.”
As part of the terms of the concession, GMR cannot sell its assets in Mactan-Cebu for seven years, but Kapur insists that this is not an issue as the company is looking upon the deal as a long-term investment.
“We are looking at things from a country perspective and there are six more airports coming up for privatisation in the Philippines and all are smaller than Cebu. We now have a wonderful base to grow further in the country.”
GMR has a 40% stake in the joint venture with Megawide Construction Corporation (60%), although the constructions costs associated with modernising the airport will be split equally between the two.
Kapur accepts that there is a risk to any airport investment and admits that some advised the company against bidding in the tender for Mactan-Cebu, but says the chance to operate the airport was just too good an opportunity to turn down.
“Cebu is an interesting airport for us as it handles a good mix of tourism and business traffic and Cebu is a large base for call centres in the Philippines,” he notes.
“The Philippine economy is growing, indeed its GDP is increasing by an average of 5% per annum and shows no sign of slowing down. Traffic is growing and tourism, largely driven by the low-cost carriers, is on the rise in Cebu soaring by 20% in 2013 to 1.6 million passengers per annum. The airport has a lot going for it.”
GMR is also one of the bidders in the ongoing tender for Japan’s Kansai and Osaka-Itami airports and is keeping tabs on the planned privatisation of a further six airports in the Philippines.
On home turf in India, GMR operates the gateways of Hyderabad and Delhi, courtesy of 63% and 54% shareholdings respectively in operators GMR Hyderabad International Airport (GHIAL) and Delhi International Airport Ltd (DIAL).
It counts MAHB (11%), the government of Andhra Pradesh (13%) and Airports Authority of India (13%) as its partners at Hyderabad’s Rajiv Gandhi International Airport and the Authority of India (26%), Fraport (10%) and MAHB (10%) at Indira Gandhi International Airport in Delhi.
As APA went to press it was in the process of acquiring MAHB’s 10% stake in DIAL. If ratified, the deal will raise its interests in Delhi’s gateway to 64%.
Expanding its wings
Secunderabad-based GVK has a majority 50.5% stake in the consortium responsible for operating Mumbai’s Chhatrapati Shivaji International Airport and a 43% interest in Bengaluru’s Kempegowda International Airport.
Outside of India, GVK manages the commercial operation at Bali’s Denpasar International Airport and elsewhere in Indonesia subsidiary, GVKPIL, has signed a memorandum of understanding (MoU) with state-owned Angkasa Pura Airports to develop a new greenfield gateway at Yogyakarta in central Java.
A relative newcomer to the aviation industry having only entered the market in 2006 when the Indian government decided to privatise Mumbai’s Chhatrapati Shivaji International Airport, and it remains keen to develop this side of the business.
Indeed it says that it is always ‘scouring’ the international environment for good opportunities.
BUSY times for mahb
Malaysia Airports acquisition of GMR’s 40% stake in Istanbul–Sabiha Gökçen means that it now 100% owns and operates the Turkish gateway in addition to its interests in Hyderabad–Rajiv Gandhi and Delhi–Indira Gandhi airports courtesy of 11% and 10% stakes respectively in operating companies GHIAL and DIAL.
It has, however, recently agreed to offload its 10% stake in DIAL to GMR because under Indian law it will never be able to obtain a majority shareholding in the gateway.
Talking about the Istanbul deal last year, MAHB’s managing director, Datuk Badlisham Ghazali, noted: “The successful acquisition is a significant milestone for MAHB.
“This acquisition gives us access to an attractive offshore asset and will enhance MAHB’s presence in Turkey. Furthermore, it is testament to our confidence in the continued great performance of our Turkish management team in Sabiha Gökçen and our commitment to this strategic investment.”
And he has indicated that it is ready to look for “meaningful” new investment opportunities overseas.
Officially MAHB says that it will continue to monitor all of its existing investments overseas and explore new opportunities that revolve around airport concessions and privatisation projects both inside and outside Malaysia.
In terms of non-equity investments, MAHB continues to expand its airport management expertise outside of Malaysia, most recently providing Basic Airport Operations Training to the staff of Nay Pyi Taw International Airport in Myanmar.
At home in Malaysia, MAHB owns and operates Kuala Lumpur International Airport and 38 other gateways that include the international airports of Langkawi, Kota Kinabalu, Kuching and Penang.
Changi Airports International (CAI) – the international investment arm of the Changi Airport Group (CAG) – entered a new phase of its development in August 2014 when its consortium took over responsibility for operating, maintaining and developing Rio de Janeiro’s Tom Jobim International Airport for the next 25 years.
The new airport operator is in effect a special purpose company whose stakeholders are an CAI-Odebrecht TransPort consortium (51%) and state-owned Infraero (49%).
CAI also has a 30% stake in the Basel Aero, which is trusted to develop the airports of Krasnodar, Sochi, Anapa and Gelendzhik in Krasnodar Krai in south Russia. Fellow stakeholders in the joint venture include Russia’s Basic Element group and the OJSC Sberbank of Russia.
And it has a 32% shareholding in Bengal Aerotropolis Project Ltd, which is developing a greenfield airport and township in Durgapur in West Bengal, India.
CAI is one of 20 investors to be shortlisted for the concession to operate Kansai and Itami airports in Osaka, Japan.
It recently signed a contract with the Maldives Airports Company Limited to provide consultancy services to support the development of Male’s Ibrahim Nasir International Airport and extended its management contract for King Fahd International Airport in Dammam, Saudi Arabia, until June 2015.
And together with consortium partners Yongnam Holdings and Japan’s JGC Corporation, CAI through subsidiary Changi Airport Planners and Engineers (CAPE) has been named as the winning bidder by Myanmar’s Department of Civil Aviation for the design, construction, operation and maintenance of Hanthawaddy International Airport and its facilities on the basis of a public-private partnership agreement for a 30-year concession period.
In terms of non-equity investments, CAI continues to advise the Brunei Economic Development Board on plans to upgrade and develop Brunei International Airport.
So, what criteria airports need to meet to be of interest to CAI? “Besides the opportunity for growth, the regulatory regime and political stability, we look at airports where we could make a difference in terms of creating or enhancing their investment value,” says Jose Pantangco, CAI’s managing director for consultancy and business development.
Pantangco notes that CAI takes a medium to long-term view of its investments. “We are a single-class asset investor – we only invest in airports and do this because we understand airports and their dynamics within the aviation systems well,” he explains.
CAI sold its 8% stake in Gemina SPA, the holding company of Aeroporti di Roma (AdR) in May 2013, which at the time was in merger talks with Atlantia.
“We decided to divest our interests in Gemina as CAI’s stake in the merged entity would have been substantially diluted,” says Pantangco.
“In addition, Atlantia had a diverse range of business activities such as toll road operations which, as a single class asset investor in airports, were not of interest to CAI. The merger took effect in December 2013.”
New kid on the block
Incheon International Airport Corporation has a 10% stake in Khabarovsk Novy Airport in eastern Russia and a series of management and consultancy contracts at gateways across the world including Erbil and Dohuk in Iraq, Manila and Puerto Princesa in The Philippines and Juanda in Indonesia, the latter through subsidiary PT Mitra Incheon Indonesia.
And it has previously expressed an interest in acquiring shares in “two or three international airports” in the Asia-Pacific region.
Subsidiary, PT Mitra Incheon Indonesia, currently provides consultancy services to Indonesian airport operators PT Angkasa Pura I and II for the development of new commercial facilities at Juanda Airport’s existing terminals and the expansion of the existing terminal at Jakarta’s Soekarno-Hatta International Airport.
Its decision to invest in Khabarovsk Novy has coincided with the one of the most successful periods in the Russian gateway’s history in terms of awards, investment in new facilities and passenger growth.
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