Sydney Airport rejects $17bn bid as investors target infrastructure

Sydney Airport has rejected a $17bn takeover offer from a consortium of investors as it told shareholders it was set to capitalise on a rebound in air travel, underscoring a surge in interest in Australia’s infrastructure assets.

The rejection of the takeover approach, one of the largest in Australian history, comes as investors including pension funds and other institutions hunt infrastructure deals in a quest for higher returns.

On Thursday, Spark Infrastructure, an Australia-listed company with electricity distribution assets, rejected a A$5bn ($3.75bn) takeover offer led by private equity group KKR and the Ontario Teachers’ Pension Plan Board. The price undervalued the company, Spark’s board said.

Sydney Airport’s board said on Thursday the proposal by Australian pension funds and US-based Global Infrastructure Partners was “opportunistic” and undervalued the country’s busiest international gateway.

The A$8.25 per share offer earlier this month was below the price at which its stock traded before Covid-19 and the airport was well-positioned to grow as vaccination rates increased, said the company in a statement.

Shares in Sydney Airport were little changed as investors bet the consortium would improve its offer or a rival bidder would emerge.

The consortium said it was disappointed by the rejection of its offer given the “considerable short and long-term challenges faced by Sydney Airport”. 

The jump in interest in infrastructure has been driven by ultra-low interest rates, funds increasing their allocations to private markets and an increasing number of opportunities, as governments move to address chronic under-investment, according to industry experts.

Privately held infrastructure funds raised $102bn last year, up from $34bn a decade earlier, according to data provider Preqin.

“You couldn’t create a more perfect storm for driving up infrastructure prices,” said Marko Bogoievski, chief executive of Morrison & Co, an infrastructure asset manager.

He said pension funds in the UK, Canada and Australia were investing 5 to 10 per cent of their portfolios towards infrastructure.

Last month Morrison & Co led a consortium that agreed to buy a 49 per cent stake in Telstra’s mobile tower sites in Australia for A$2.8bn.

Analysts said the bid for Sydney Airport reflected long-term confidence in a sector battered by Covid-19 and the monopoly advantage enjoyed by the hub.

The closure of Australia’s borders to non-residents due to coronavirus and strict caps on flights into the country will slash international arrivals to 3,035 passengers per week for the next six weeks.

“Infrastructure assets like Sydney Airport are so important for Australia and many top managed funds and superannuation funds know this and have sizeable investments in these assets,” said Dale Gillham, chief analyst at Wealth Within, a financial services company.

“Whether the group raises their offer or another suitor, such as Macquarie, comes in with a higher bid is yet to be seen, so I would recommend that current investors wait to see what happens rather than exit right now.”