Chinese M&A

China buys 10% stake in London’s Heathrow airport

China's sovereign wealth fund will pay $727 million for a stake in the world's third-busiest airport.
Heathrow: Europe's busiest airport is now 10% owned by CIC

China has bought a 10% stake in London’s Heathrow airport as it continues its investment in Europe despite the economic downturn.

European investors have a long history in China, but the majority of Sino-European investment has been going in the other direction recently, according to PricewaterhouseCoopers (PwC). And the UK has been a preferred investment destination.

China Investment Corporation (CIC), the country’s sovereign wealth fund, said in a one-sentence statement on its website yesterday that it had invested in the airport, which is the busiest in Europe. It didn’t give any details on the transaction.

CIC, which had total assets of $482 billion by the end of 2011, spent $727 million to buy the stake.

Ferrovial, a Spanish infrastructure group, which indirectly owns Heathrow, said it had agreed to sell a 5.7% stake in the airport to CIC for £257.4 million ($413 million). As part of the same transaction, CIC inked a deal to buy another 4.3% stake in Heathrow from another Ferrovial shareholder for £192.6 million.

The deal enhances Ferrovial’s liquidity position and financial flexibility, the Spanish group said.

This is CIC’s second big investment in the UK’s infrastructure sector. Earlier this year, the fund bought 8.68% of Kemble Water, owner of the UK’s biggest water and sewerage company, Thames Water.

CIC was set up in 2007 to manage the global investment of China’s foreign exchange reserves. The Heathrow deal is in line with CIC’s shift toward infrastructure assets.

The fund has long been heavily invested in financial and energy sectors. Financial assets accounted for 19% of its portfolio, while energy assets accounted for 14% at the end of 2011.

Lou Jiwei, head of CIC, has said he wants to reduce the fund’s holdings in public securities and move to longer-term investment in infrastructure projects, particularly in the US and the UK.

Invest in Europe
Despite the problems in the eurozone, Chinese investment in Europe has been steadily rising during the past six years, increasing from just 11 deals in 2006 to 61 in 2011, PwC said in report.

Deal flow in the opposite direction, from Europe to China, has fallen from a peak of 163 deals in 2006 to a low of 85 in 2009, though volumes have since recovered somewhat as European investors look for growth in China’s faster-growing economy.

Not surprisingly, Chinese state-owned enterprises have led the way in investing in Europe. The country’s privately owned businesses have struggled to repeat that success, but are now also looking to expand by buying companies overseas in a range of sectors.

The UK has for many years accounted for the lion’s share of M&A activity between China and Europe, PwC said, with deal flow very much a two-way street between the two countries.

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