One of Australia’s most prized listed infrastructure assets could be taken private by a consortium including and representing superannuation and pension funds following a deal announcement on Monday despite – or possibly spurred on by – changes to the way performance of superannuation fund returns are benchmarked.
The proposed $22.6 billion purchase [representing an enterprise value $30 billion including debt] of Sydney Airport Holdings has been touted as the country’s biggest ever buyout led by IFM Investors, QSuper and Global Infrastructure Partners with the potential to include existing 15 per cent shareholder Unisuper.
The deal announcement comes weeks after the government’s game changing Your Future, Your Super reforms and against the backdrop of uncertain defensive fixed income style returns and possible future equity market volatility.
“Yes, there is pressure on returns [of super funds], but these investors have had plenty of experience now to know that airports are actually attractive long term assets. And these [assets] will definitely have a role to play. They just have to wait for the right opportunity to invest. At this time, it seems like the right opportunity invest for the long term,” said Manish Rastogi, consulting firm Frontier’s head of infrastructure.
IFM oversaw $163 billion in assets as of the end of last year including $68.1 billion in infrastructure with investments in major airports in Melbourne, Brisbane, Perth and Adelaide. The soon to be merged QSuper is responsible for $113 billion, has a stake in Britain’s Heathrow Airport.
Existing Sydney Airport shareholder Unisuper was not part of the original consortium but released a statement on Monday stating that in-principle the fund sees merit in Sydney Airport being converted from a publicly listed company to an unlisted company and that it has a favourable view of the consortium partners.
Frontier’s Rastogi argues that Your Future, Your Super legislation – which at the eleventh hour added specific indices for infrastructure and property performance benchmarks – could enhance the case for a deal such as Sydney Airport for super fund investors part of the consortium or connected through their ownership in IFM.
“I haven’t seen the business plan, I’ve only read as much as you have, but I suspect that, given the timing and the price that managers are paying for the asset, they’ll probably expect to see some powerful performance in the future,” Rastogi said.
While the objective for funds is to beat the listed SAA benchmark on the particular asset level, they’re looking at total portfolio level, Rastogi noted.
“If they can’t beat the benchmark on infrastructure that might be done elsewhere. And as long as the total portfolio is doing okay, it’s fine to look at the sum of all the parts rather than just the part itself,” Rastogi said.
“If [funds] are seeking alpha for infrastructure, that might actually go into unlisted assets, which provide a little bit more of a premium return,” Rastogi said, highlighting the strategy funds might be considering relating to the performance test and the potential for outperformance of infrastructure assets such as Sydney Airport with a longer term time horizon.
Time to wait
Shares in the ASX-listed Sydney Airport spiked on Monday inline with the company’s pre-covid trading level, reflecting the 40-plus per cent premium of the offer over the pre-announcement trading levels. Sydney Airport shares settled at 7.61 at the close of trading on Wednesday, representing a 7.75 per cent discount to the consortium’s offer.
“This consortium certainly has a very long term time horizon. And we’re talking about 10, 15, 20 years or more. So what happens today with COVID or tomorrow is important, but it’s not the be-all-and-end-all because they’re looking at the long term recovery and long term growth of this asset,” Rastogi commented.
In addition to the investing time horizon Rastogi highlighted control investors would gain taking the asset private.
“In this [take private] scenario the manager sits on the board, they look at the business plan and they make decision for the long term. They have absolute view, full view of what the airport’s going to look like and how it’s going to perform and grow,” he said.