Yunnan Airport shortlists investors for deal

PUBLISHED : Monday, 03 November, 2008, 12:00am
UPDATED : Monday, 03 November, 2008, 12:00am

Bidders may pay up to US$900m for Kunming airfield stake, buy into operating firm

Yunnan Airport Group, which owns 11 airports in southwestern China, has shortlisted a group of investors for a two-part deal that may see them pay as much as US$900 million for a stake in a new airport in Kunming and then acquire a stake in the larger operating company, market sources said.

Germany's Fraport, the owner of Frankfurt airport, Singapore's Changi Airport and a fund run by Australian investment bank Macquarie were among those who had made it to the next round of the process, the sources said.

Neither Yunnan Airport nor the three bidders commented.

Several sources said Yunnan Airport was leaning towards an operating company over an infrastructure fund in the hope of gaining more commercial experience and would sell as much as 30 per cent stake.

'It's going to be a while in these markets to get debt and equity funding for a greenfield airport project,' said a source.

Yunnan Airport is developing an international airport in Kunming after the State Council approved the US$3 billion construction plan in 2006. When completed, the airfield will be the mainland's fourth-largest behind Beijing, Shanghai and Guangzhou.

The first two runways will be finished as early as next year and will be able to handle 25 million passengers annually. Another two, whose completion dates are unspecified, will boost total capacity to 63 million passengers a year. Kunming's current airport, which can accommodate 20 million passengers a year, will remain open until 2010.

'To get a commercial return is going to require restructuring and they will have to rejig growth forecasts with economic growth falling which will knock on road and airport use,' said a source.

'There is the existing airport that will continue to operate so people will try to structure so you can have the benefit of the cash flow from that but the final investment by foreign parties depends on how much they get from other sources: from provincial government grants and other elements - the size is pretty rubbery.'

The mainland economy grew 9 per cent in the third quarter, its slowest pace in five years, as countries around the world slipped into recession.

Beijing Capital International Airport and Shanghai International Airport, operators of the mainland's two largest airports, said last week they would probably miss passenger growth targets this year.

The mainland's three largest airlines - Air China, China Southern Airlines and China Eastern Airlines - last week all reported quarterly losses on less travel and expect the trend to continue into next year.

Beijing and provincial authorities believed Kunming could become a major southwestern transport hub with both domestic and regional links. The province is a popular tourist destination, thanks to its natural attractions such as Lake Dian and the large number of ethnic minorities there.

The mainland has increased the limit for overseas investment in domestic airports to 49 per cent from 35 per cent, hoping to fund capacity expansion and bring in foreign expertise.

Fraport bought a 24.5 per cent stake in Xian Xianyang Airport in September while private equity group Pacific Alliance in December last year led a consortium in a US$200 million deal to take a 49 per cent stake in HNA Airport Holdings, which owns Hainan Airport and other mainland airports.

In 2006, Airport Authority Hong Kong spent 1.99 billion yuan (HK$2.26 billion) on buying a 35 per cent stake in Hangzhou Xiaoshan International Airport. In December last year, Changi Airport bought a 29 per cent stake in Nanjing Lukou International Airport for US$138 million.