Long-term shareholder divests entire stake in Beijing Airport

The sale comes as the company faces heavy capex to expand operations. The share price falls below the placement price on a poor day for China-related stocks.
Aeroports de Paris has sold its entire stake in Beijing Capital International Airports (BCIA) through a placement arranged by Morgan Stanley, raising HK$1.97 billion ($253 million).

The sale comes at a time when other investors have been piling into the Hong Kong-listed stock on the back of the companyÆs acquisition of most of the assets involved in the ongoing phase three expansion at the airport, and seemed to trigger some disappointment in the market as the share price fell sharply.

BCIA shareholders approved the takeover of the assets from the companyÆs state-owned parent at a price of Rmb15.6 billion ($2 billion) on December 20 amid expectations that the upcoming Beijing Olympics will spark a significant rise in air traffic to the Chinese capital.

The share price had risen 67% since then by the time the placement was launched early Monday evening and was only slightly off from a record close of HK$8.64 reached last Thursday.

The French Airport operator didnÆt comment on why it decided to offload its stake, which accounted for 16.2% of the H-share capital, but having bought into the stock in connection with its IPO in February 2000, it would have been able to realise a significant profit from the sale even though the share price fell 3.8% on Monday.

The reaction in the market was quite negative, however, and at one point the share price was driven down as much as 11.4%. It closed at HK$7.52, which was down 9.4% on the day - making it the worst performing stock in the H-share index - and 3.2% below the placement price.

To be fair, the entire Hong Kong market was off, led by H-shares in particular. This in turn was triggered by jitters across the border where the Shanghai and Shenzhen 300 Index plunged 9.2% - its largest one-day loss in 10 years, according to Bloomberg. The decline, which came after a 13% gain in the past six sessions, appeared to have been triggered by an array of rumours and concerns about more tightening measures as the Beijing government is trying to crack down on illegal share offerings and investments.

ôI donÆt think (BCIA) did too badly. It would probably have been down 6% even without the placement,ö says one broker, pointing to stocks like Yanzhou Coal and China Shenhua Energy, which were down 8.4% and 7.3% respectively. Air China dropped 5.96%.

ôBut you have to say the timing of the sellers was impeccable û offloading that amount of shares at not too wide a discount on the eve of a sizeable correction,ö he adds.

The 253.6 million shares were offered to investors at a price between HK$7.77 and HK$7.90, which represented a 4.8% to 6.4% discount to MondayÆs closing price of HK$8.30. After a bookbuilding exercise, which was said to have attracted 40-50 investors, the price was fixed at the bottom of the range at HK$7.77 for the maximum discount.

Sources close to the deal said the offer was kept open late into the Hong Kong evening to give some of the companyÆs existing shareholders in the US a chance to participate, but added that the order book was closed once the deal was covered. Some of these existing shareholders did come in to support the sale, but the order book also contained a good number of new investors, they said.

In a statement, Aeroport de Paris said this transaction concluded a fruitful collaboration of more than seven years between it and BCIA, but at the same time the company reaffirmed its ôwillingness to accompany the Chinese authorities in their development of airports in China, in particular at the regional level.ö

ôMore generally,ö it said, ôthis transaction is part of our groupÆs international strategy which focuses on interventions in airports with strong development potential, where the groupÆs industrial expertise as an airport operator is the most useful and value adding.ö

One source noted that the sale was likely part of a drive by the French company to divest non-core assets following its own IPO in June last year. The company, which operates 14 civil airports in the Paris region including Charles de Gaulle and Orly, did have a seat on BCIAÆs board, but the five year lockup it had agreed to when it bought the shares expired more than two years ago. Using the placement price, the BCIA stock has gained 315% since it listed at HK$1.87.

BCIA is expected to benefit from steady growth in airport traffic both on the passenger and cargo side over the next few years due to strong economic growth in the Beijing region with the 2008 Olympic Games being one important driver. According to a 2006 traffic study by consulting firm Booz Allen Hamilton, the compound annual growth rate of the passenger flow for international flights at the Beijing Airport is expected to be 16.9% between 2005 and 2010. Regional flights is expected to see a passenger flow CAGR of 12.6%, while the growth rate on domestic flights is projected at 10.6%.

The third terminal is a crucial part of this, however, as terminal one and two have been operating above full capacity over the past couple of years. The new terminal and runway, which is expected to be completed by the end of 2007, will enable the airport to handle an additional 43 million passengers per year on top of the current design capacity for 35 million passengers. The total cargo handling capacity will be 1.8 million tons per year.

Last year 48.7 million passengers traveled through the airport, up 18.7% from the year earlier period. Cargo throughput increased 31.6% to 1.32 milion tonnes.

However, analysts have expressed concerns about the large amount of capex needed to pay for the acquisition and several firms have hold or sell recommendations on the stock. In a circular outlining the phase three asset acquisition, the company noted that aside from the upfront acquisition cost it will also need to foot a bill of about Rmb6.4 billion ($827 million) to complete the construction.

To fund this, the company is planning to raise up to Rmb4 billion ($517 million) from the sale of A shares, to take up a loan of up to Ç500 million ($660 million) from the European Investment Bank and to issue fixed-income securities with an aggregate principal of about Rmb10 billion ($1.3 billion). The remainder is to be satisfied by cash generated from it operations or other bank borrowings.

In September last year, the company raised $131 million from the sale of new H-shares at a 5% discount to the market price at the time. That sale, which represented 20% of the existing H-share capital, was arranged by UBS.
¬ Haymarket Media Limited. All rights reserved.
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