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建立人际资源圈Airport Privatisation Infrastructure--论文代写范文
2016-05-04 来源: 51Due教员组 类别: 更多范文
51Due论文代写网精选代写范文:“Airport Privatisation Infrastructure”。这篇论文主要试图探讨三个主要问题：第一关注目前机场行业在欧洲的趋势和探讨其主要成就。第二是初步评估巴勒斯坦权力机构。第三是涉及欧洲机场关键私有化考虑和主要筹备步骤。
A distinct Infrastructure Asset Class has emerged in the last three years, representing USD500bn (est.) of activity worldwide, with certain key characteristics underlying the core assets:
Stable and predictable cashflows
High barriers to entry driven by monopoly, regulation and/or prohibitive upfront costs.
‘Modest risk, modest return’
Especially within the European airport sector there have been numerous benchmark type transactions in terms of size, prestige and audacity, like the £0.75bn sale of London City Airport, the 1.4bn Initial Public Offering (IPO) of ‘Aeroports de Paris’ (AdP) and the £16.3bn acquisition of BAA plc.
In addition to a strong traffic growth, a significant financial investor interest driving upsurge in M&A activity and the growth and convergence in the airport investor base, it is assumed that there will be further privatisations, particularly in eastern and Western Europe. Prague Airport (PA) could be in the privatisation pipeline for 2008. The dissertation seeks to answer three main questions.
The first one concerns the current airport sector trends in Europe and explores key achievements and challenges looking at AdPs privatisation. An Excurse delivers evidence from the related port sector.
Secondly how an investment case and a preliminary valuation for PA can look like, transferring key criteria of AdPs privatisation.
Whilst the third involves key privatisation considerations for European airports and explains the main preparatory steps required for a privatisation of PA.
Chapter 1 Introduction
It is assumed that there will be further privatisations within the infrastructure sector, particularly in Eastern and Western Europe. Prague Airport (PA) could be in the privatisation pipeline for 2008. The purpose of the dissertation is to explain the current airport sector trends in Europe. Furthermore to explore the key achievements and challenges looking at AdPs privatisation.
An investment case and a preliminary valuation for PA is provided for external readers. Chapter 4 & 5 provide the findings, transferring key criteria of AdPs privatisation and additionally explain the main preparatory steps required for a privatisation of PA.
Executive summary:
Prague Airport has an attractive equity story and a compelling investment case
attractive growth prospects, supported by increasing LCC traffic
strong track record of delivering sector leading EBITDA margin
regional positioning as a Sky team transfer hub
improved capacity through infrastructure investment (Terminal 2 North) with more to come
There have been several benchmark transactions in the airport sector over the last two years, including some high profile privatisation transactions.
1.4bn IPO of Aeroports de Paris (2006)
£16.3bn public to private of BAA plc (2006)
1.9bn disposal of Budapest Airport (2005)
Given the disparity between stock market valuations and M&A valuations, the choice of an airport privatisation model is heavily influenced by value maximisation considerations.
Valuation, however, needs to be balanced against other important Government considerations, including control over strategic assets, stimulating domestic capital markets, more widely distributed ownership structures etc.
Chapter 2 Literature Review
The author chose the dissertation topic as there exists little literature and research reports about the privatisation of airports in detail (e.g. Pfahler, 1999; Macmillan, 2000; Wolf, 2003; Sullivan, 2007).
Whereas over the years a number of publications have developed the understanding of privatisation in general (e.g. Robinson, 1984; Parry, 1990; Weeks, 1994; Gibbon, 1999; Drakeford, 2000; Fumagalli, 2000; Domney, 2005; Hodge, 2006; Eliassen, 2007).
Theories as “Privatisation is recently applied to design more effective and efficient organizations” (Frost, 2006) will be investigated. Additionally theories about difficulty, success and benefits of privatisation.
This dissertation will review the literature and the application of privatisation with big business.
Chapter 3 Methodology
The author will combine qualitative and quantitative research and look at the key privatisation considerations from a different number of viewpoints, to verify the interpretation and conclusions. To make this so called triangulation possible, both desk research and field research will be carried out. Desk research will focus on examining literature.
Field research will use a case study, interviews and statistics to examine the key achievements as well as the challenges of the privatisation (IPO) of AdP. Furthermore the author will reflect privatisation models of PA and balance, if there is a possibility to transfer key considerations responsible for privatisation success, from AdP to PA.
The primary data will be collected by carrying out unstructured personal interviews, with selected staff from financial institutions, stating a cyclical forecast for the future privatisation trend within sector. To complete infrastructure sector research and provide a look over the rim of a tea cup an excursus explores current port sector trends. Hence, in-depth-data will be collected, justifying the qualitative approach.
During his final year the author has done internships within the Investmentbanking- and Strategy-Consulting-Sector, got some inside scoop of the industry and access to some interview partners for unstructured personal interviews (1 Board Member, 1 Director, 1 Manager, 1 Consultant), as well as to research sources. Applying these research limitations guides to qualitative data due to the senior level of the interview partners.
Secondary data will be collected by examining internal company documents (annual & internal reports, literature, periodicals, magazines) and external valuations (e.g. from Thomson Banker Financial, Bloomberg, Datastream) which are available.
On the other hand, the deductive theory from Patria (2008) “Privatisation of PA is probable” will be carried out by conducting a quantitative research. Primary and secondary data will be collected using statistics and research reports (e.g. from financial institutions like Morgan Stanley, Deutsche Bank, UBS, etc.).
Apart from precedent airport transactions, comparable trading multiples and examples of European airport IPOs, a selected benchmarking will be carried out putting PA in context. Additional IPO information will be researched targeting as per listing alternatives beside pros and cons.
This leads to the AdP privatisation case study. Concerning this matter, key achievements will be examined and an issue summary will be given, implying French state objectives, key challenges like capital structure post IPO, peers performance pre-IPO, demand evolution during bookbuilding and the AdP aftermarket performance commencing from first trading day.
Overview of company and sector:
Key elements about the company and its background will be analyzed (current airport market trends, including the traffic growth, investor appetite and valuation, latest benchmark transactions, growth in the investor base, developments of sector valuation).
Apart from an investment case a preliminary valuation for PA will be analyzed in detail.
This investment case can be divided into equity story, competitive positioning among regional peers, differentiation from key competitors aside from potential issues and mitigating factors.
The preliminary valuation specifies an overview of typical methodologies used to value airport assets, principal forecast assumptions as well as an indicative valuation summary, showing a possible enterprise value range.
The privatisation considerations section will consist of three parts:
Primary considerations (a) deal with the selection of a privatisation model, paying regard to government objectives, privatisation options, legal structure, regulation and social issues.
Equity capital markets considerations for an IPO (b) will address considerations such as listing locations and timing an IPO.
Discussing a majority sale in the third section (c) will provide an introduction of potential investors, outlining their investment strategies and pursued situations.
Ethical Issues:
The collection of data from individuals contains informed consent and does not involve the use of inducements. Furthermore the collection of data from organizations or individuals within organizations has the informed consent of the organization.
A clear statement has been made, when asking to participate in an interview concerning the broad nature of the research, the nature of the questions or activity, how the data is used, and whether anonymity and confidentiality is ensured. The interview partners remain anonymous.
The dissertation does neither involve under 18’s or other vulnerable persons, nor primary research with any NHS personnel or documentation (other than that in the public domain) without NHS Ethical clearance.
Chapter 4 Findings
Findings from the unstructured personal interviews with selected staff from financial institutions, stating a cyclical forecast for the future privatisation trend within the sector, particularly describing PA (1 Board Member, 1 Director, 1 Manager, 1 Consultant).
According to Morris (1987 p48) have directors of a company access to information regarding the risks the company faces. Whereas investors do not have access to such information. To reduce this [information] asymmetry the party with more information has to signal it to others.
In conclusion an important point in the interview with the director of an investment bank was to find out the current airport market trends. The outcome was that we have an ideal environment for Governments to reduce their ownership of airport assets when we look on the following four points:
1. Strong traffic growth
Record traffic growth across European airports fuelling superior financial performance
Strong traffic growth presents excellent opportunity for airports to increase under-exploited commercial revenues
Most airports currently operating beyond capacity and are considering construction of new runways and terminals
2. Investor appetite and record breaking valuation
Significant financial investor interest driving upsurge in M&A activity
Listed companies: share price performance has been very strong and valuations have returned to historic highs
M&A: valuations remain very high reflecting the significant appetite for airport investments (c.15.0x EV/EBITDA vs. 8.0-11.0x trading EV/EBITDA)
3. Several benchmark type transactions
Numerous benchmark transactions in the last 12 months in terms of size, prestige and audacity
16.3bn recommended offer for BAA plc¹
1.4bn IPO of Aeroports de Paris¹
0.8bn sale of London City Airport¹
1.9bn sale of Budapest Airport
4. Growth and convergence in the airport investor base
Airport investor base has evolved significantly over last few years
Increasing number of financial investors
Driven by attractive airport investment case, leverage potential and liquidity in the debt markets
As a consequence, there is a convergence and increased competition between traditional infrastructure type investors and financial sponsors
European Regional Perspective - Market Analysis
According to ACI Europe, the biggest challenge for European aviation will be the ability to address under-capacity issues in a sustainable manner. A new “Open-Skies” agreement between Europe and the US of March 2008 should lead to greater competition but also new opportunities for other European airports, with EU based airlines being able to fly from any European airport to any city in the US, and vice-a-versa. The European Commission has recently presented comprehensive legislation within the ‘Airport Package’ with three initiatives:
Proposed new EU rules on airport charges
A communication relating to airport capacity
An assessment of the operation of the existing rules governing the ground-handling market
European airline traffic grew by 4.5% in 2006 versus 2005 (5.2% in PKT and 2.4% for airfreight), with continued growth forecasted for 2007-08 and 2008-09 as airlines focus on more profitable routes rather than seeking to increase overall market share.
Source: Broker notes, Factset research systems, Company Reports
Excurse: Infrastructure sector trends (port industry)
Port industry: Key themes
According to Pickford (2006), a ports relative strength as well as an airports relative strength depends on development of its national economy, stability and dynamism of local industry, globalisation of trade and the ability to adapt to traffic.
‘Acquisition of container terminal operations offer a “safer play” than container shipping companies, while capturing the upside of the container shipping business’, one of the interview partners told the author.
Port assets as well airport assets can be a very attractive investment opportunity. Within the infrastructure sector subsist conformable sector trends.
In addition to the outlined themes, the port industry persists the following key themes.
1. Fragmented industry
There exist only a few global operators with substantial financial resources. The top 3 operators handle c.30% of global throughput. Asian ports are exhibiting high growth rates and Portfolio premium attached to those with global operations.
2. High barriers to entry
Substantial investment costs persist here. It is a capital intensive industry. New developments or privatisations require bidders with a track record. Whereby geographic position of ports means replication of infrastructure from scratch is unrealistic.
3. High margin potential
Margins c.20% and high operational gearing are characteristic. ROA can reach 15% – 25%.
4. Customer Base
Consolidation of container shipping companies is denotable as well as vertical integration (ship liners investing in ports, infrastructure and logistics).
5. Continued privatisation trend
A shortage of government funding for expansion of port infrastructure is designating, particularly deep water. A private sector involvement is required for technical expertise and funding. Furthermore we see a political change and establishment of more market-oriented governments. Finally the scarcity of good ports has lead to an increase in greenfield and brownfield projects.
6. Capacity utilisation
As well as airport operators, most port operators act close to capacity. The rising demand adds pressure on the existing capacity.
7. Defensive investment
The industry is characterised by defensive investments with low risks. Investments in terminal capacity are vital to the ability to meet the growing demand.
8. High port tariffs
Significant are high switching costs between ports for vessel operators due to investment in landside infrastructure. Beside there is no regulation on port tariffs as yet.
The author agrees to Tongzon (2007) who states that another important determinant of port competitiveness is the adaptability to the customers' demand. All these results provide some policy implications and guidance for port authorities and port operators in formulating effective strategies to improve their competitiveness vis-à-vis rivals.
Port industry: Key drivers
The world container throughput is expected to grow by 9.1% p.a. 2005-11 but port capacity will increase by 4.8% (Source Standard & Poors). The world container terminal utilisation is forecast to increase from 79% in 2005 to over 100% in 2010 (Source: Drewry). But congestion issues will be severe if further terminal capacity is not developed alike in the airport sector.
The author agrees to Brooks (2006) who states that the relationship between ports and governments has changed profoundly over the past quarter of a century. That many governments have sought to extract themselves from the business of port operations and, in many cases, the provision of port services has devolved to local governments, communities or private management and administration. But this is not the most important driver affecting the industry.
Beside this factor, the container shipping markets is one, as the capacity is increasing. The vessel orderbook will increase 13% by 2008 with strong container shipping fundamentals (profitability and earnings). Also the Container throughput is growing. In detail, the worldwide growth in container traffic (11% in 2005) is outstripping increase in trade (7% in 2005), mainly driven by Asia (growth rate of 18% in 2005 vs. global growth of 15%) (Source: Drewry).
Moreover a key driver is the geographic location: Access to key markets is crucial. The proximity to trade routes increases the viability of a port. Related port infrastructure (road, rail, water) drives usage as vessels deployed on long-haul routes aim to call as few ports as possible and want single destinations. This is key for both hub and spoke transshipment ports, the interview process clarifies. Important is moreover the strategic access to growth regions – Baltic States, Asia and US.
In the manor of Yips globalisation drivers (1992), competition is a key driver of the port industry. Long-term contracts and JVs with major shipping companies preferable to short-term, as they provide stable, secure cash flows and a guaranteed market. The geographic position of existing ports is a strong deterrent to new entrants. It is a competitive industry in terms of rival ports and rival terminal operators. The competitive process is restricted by high port capacity utilisation.
‘All drivers (Yips globalization drivers) need to be analysed to determine the degree of globalisation (standardisation) or localisation should be used within a given industry’ (Stonehouse et al, 2004). For this reason the driver global trade has to be analyzed: Significant is that emerging markets in Eastern Europe and Asia drive the demand for primary goods. Moreover the growth in consumption in OECD countries drives the demand for goods produced in emerging countries.
SWOT analysis on port of Hamburg and HHLA
Humphreys SWOT analysis is an extremely useful tool for understanding and decision-making for all sorts of situations in business and organizations. The author therefore uses this tool to investigate the key factors of a German port, as an example for analysing an infrastructure asset on the verge of a privatisation. As within the infrastructure sector the factors may be comparable to factors of an airport:
1. Strengths
Market leading position in the region
Interface with growing markets of China and Eastern Europe
No other European port offers such a dense network of departures to N.E. Asia, E. Europe and China
Accessibility to Baltic states
Currently, strong Central European infrastructure (road, rail and waterways), providing access to inland markets
Hamburg is Europe’s largest hub for railborne container transport
Land bridge between Hamburg and Lübeck providing fast link to Baltic states
Availability of transport cost advantages – Hamburg is 110km inland, providing a natural cost advantage over competitors (cut short costly land transport)
Track record of resilience – during 2001/02 recession, the port made above average progress
Universal port – wide ranging services for all types of consignment
“State-of-the-art” Altenwerder terminal, with 4 berths for super-size ships
Business model provides security of income streams. Compensation must be paid if leases are terminated early
2. Weaknesses
Capacity almost at full utilisation – priority must be given to construction of additional container handling capacity
Settlement in Hamburg is dense, consequently there is no possibility of expanding beyond the port limits
Depth of channel restricts access to new-generation, larger fully-ladened vessels. Plans are in place to deepen the Lower and Outer Elbe channels, requiring time and investment
Eastern rail links are sufficient at present, but need to be strengthened to take advantage of high growth expectations
Local road network requires expansion
Increasing train frequency to Altenwerder may cause bottle necks, with knock-on implications to port congestion and service delays
3. Opportunities
Leverage from current position as “middleman” between east and west to take advantage of strong growth in Far East
Hamburg Senate’s Special Investment Scheme (SIP) 2010 details policies to ensure conditions remain for Port of Hamburg to maintain its strong market position
Russia’s lift of trade restrictions and ambitions to join the WTO is increasing trade. Hamburg is the ideal “port of entry”, particularly given HHLA’s existing operations in Lübeck
Increasing containerisation and trade growth provides business opportunities
Develop relations with shipping companies to secure long-term profitable contracts
4. Threats
New container terminals coming into operation in Rotterdam Antwerp and Bremen in next few years, resulting in intensification of competition
Lack of further infrastructure investment/development by the state in particular areas may restrict access to new business opportunities
Acquisition of Northern European competitor by Asian shipping line or port, providing competitor with instant access to Asian market and associated advantages
Eurogate terminal is undergoing modernisation. When completed this will provide 3 berths for new-generation container ships
Existing pool of logistics sites for port expansion are only sufficient to supply demand for the next three years
New generation of global port operators may emerge from China due to growth factors, with access to shipping companies and trade routes
Conclusion: HHLA is well positioned within the market and has a number of strengths and opportunities available to take advantage of. The key issues HHLA faces are the pressure on capacity and future infrastructure investment.
The next step is a transfer to PA.
Investment case and preliminary valuation for PA
Investment case
Borenstein (2007) explains: “The rebound and growth in service and traffic comes with a heavy price, however. As passenger volume has expanded, and flight operations have increased more than commensurately with the movement toward smaller aircraft and more frequent service in many markets, congestion and delay costs have also reached record levels.”
In context this can result in an attractive equity story and compelling investment case for PA. PA’s strategic location and favourable tariff regime enable it to command a compelling market position.
The interview partners described a record traffic growth for PA due to the following factors:
Fastest growing European airport. Passenger CAGR 15.3% (2002-2005)
Largest passenger throughput among new EU member states at 10mn
Favourable economic fundamentals
Record GDP growth of c.6% (above EU average)
Rising export volumes
Increasing tourist traffic (over 6 mn in 2005)
Furthermore a significant transfer hub potential, as it is a key central European junction, with new increasingly significant business routes to Russia/Middle-East and Asia. It has expanding partnerships with Czech Airlines and SkyTeam Alliance and an increased handling capacity attracting new carriers. What recent development shows is an appeal to network carriers and increased LCC exposure, which means: 1. High service standards at low airport taxes. 2. Competitive landing fees. 3. New incentive-based sales policy targeted towards LCC’s.
Share of passengers expected to reach 25% by 2007
Reduced landing fee rates
Discounted fees on new regular routes
In addition strong EBITDA margins with further enhancement potential: Research shows historically strong and stable EBITDA margins
49.6% in 2005, average 50.7% 2001-05
EBITDA CAGR 2001-05 of 8.3%
With further enhancement potential like expanding commercial activities e.g. 54 new lease contracts for commercial premises in North 2 Terminal (T2N) and Cargo revenues above 11mn, record 33% y-o-y growth.
PA’s performance driven management team with experienced operational management succeeded in maintaining stable airline/passenger taxes while reducing landing fees. A prudent financial management achieved substantial savings on ECB credit granted for T2N.
To explain the competitive positioning among regional peers the author uses a matrix (Figure 4.1: Regional hub competitors). As shown PA compares extremely favourably to its regional peers (see also Figure 4.2: Location of nearest large airports). Preliminary valuation
According to Coperland (2002) typical methodologies used to value investments are: 1. IRR-based analysis (Based on equity IRR required by investors). 2. DCF (Based on discounting FCF at WACC). 3. Trading multiples (EV/EBITDA, PER). 4. Historic transaction multiples. 5. IPO (Based on precedent IPOs).
Together with the interview partners the author sets opposite the main operating assumptions for PA:
Base Case:
Pax growth: As per company forecasts, CAGR 2005-10: 9,5%, CAGR 2010-15: 4,4%.
Aero fee / pax: 2006-2010: 2.5% annual growth, catching up with levels achieved by major European airport operators
Non-aero fee / pax: 2006: 5% growth, accelerating by 100bps p.a. up to 2010. Thereafter slowing down to fixed 3.0% p.a.
Opex: Staff costs: employee number growing 6% p.a. from 2006 to 2010, 3.0% thereafter. Cost per employee growing with inflation. Other opex: growing with inflation.
EBITDA margin: Averaging 55.9% over the period. Ranging from 50.9% in 2006e to 60.1% in 2015e.
High case:
Pax growth: As per Interview partner estimates: CAGR 2005-10: 9.5%. CAGR 2010-15: 5.5%
Aero fee / pax: 2006-2010: 2.5% annual growth, catching up with levels achieved by major European airport operators
Non-aero fee / pax: 2006: 5% growth, accelerating by 100bps p.a. up to 2010. Thereafter: flat lined at 5.0% p.a. up to 2015.
Opex: Staff costs: employee number growing 5% p.a. from 2006 to 2010, 1.5% thereafter. Cost per employee growing with inflation. Other opex: growing with inflation.
EBITDA margin: Averaging 55.9% over the period. Ranging from 50.9% in 2006e to 60.5% in 2015e.
other key cashflow items:
Depreciation: 2.5% of previous year fixed asset base.
Tax rate: 28%
Capex: Maintenance capex: 4% of previous year fixed asset base. Growth capex: 5-year plan – CZK 6.0bn investment in new runway started 2007.
NWC: stable over the period
“For managers, DCF tools will continue to be important. However, history also shows that on occasion market valuations can and do deviate. They can benefit that way only if they understand the real underlying values. Managers need to keep their focus on discounted cash flow and all those factors in the company and marketplace that reflect the firm's capabilities and opportunities.” Carter (2006)
The interviews acknowledged this. Depending on the mode of privatisation and Prague Airport's long-term business plan assumptions, an analysis indicates that a valuation in excess of EUR1.8bn could be achievable (assuming that a new runway is built).
Interview partners stated the following DCF assumptions:
Cost of equity10.4%
Risk free rate4.35%
Beta1.1
Equity market risk premium5.50%
Cost of debt3.80%
Before tax cost of debt5.25%
Tax rate28.00%
WACC7.75%
% debt40.00%
% equity60.00%
Terminal value
Exit multiple15x EV/EBITDA
Perpetuity growth rate2.5% - 3.0%
This leads the following Enterprise value range (m):
Transaction multiple 1.630 – 1.820. Implied EV/EBITDA 2006 range: Low 18.0x, High 20.0x. Based on average trade sale EV/EBITDA of 19.0x. Prospective EBITDA 2006 applied. EBITDA 2006 91m.
Discounted cash flow (High case) 1.590 – 2.030. Implied EV/EBITDA 2006 range: Low 17.5x, High 22.3x. WACC of 7.75%. Combination of 15x EBITDA exit multiple and perpetuity growth method (3.0% growth). EBITDA 2006 91m.
Discounted cash flow (Base case) 1.220 – 1.770. Implied EV/EBITDA 2006 range: Low 13.4x, High 19.4x. WACC of 7.75%. Combination of 15x EBITDA exit multiple and perpetuity growth method (2.5% growth). EBITDA 2006 91m.
Trading multiples 1.120 – 1.300. Implied EV/EBITDA 2006 range: Low 12.3x, High 14.3x. Based on EBITDA 2006E of 91m at EV/EBITDA of 13.3x. EBITDA 2006 91m.
An analysis at various prices can be found in Appendices, Figure 4.3 Analysis at various prices.
privatisation considerations
(a) Primary considerations
Tatahi (2006) explains that the privatisation model should be selected to meet the objectives of the key stakeholders.
Transferred to PA these are e.g. the Czech Government or PA employees. Such objectives would need to be clearly defined at the outset as part of the privatisation process.
government objectives
Retained stake / influence through majority or blocking minority (special/golden shares no longer possible from EU perspective)
Maximise immediate proceeds
Ensure future growth of air traffic / broader economic benefits
Put in place a stable and growth enabling regulatory framework
Put in place strong corporate governance
regulation
Overall regulatory framework such as economic regulation and licensing
Enacting the required relevant legislation
Existence and role of independent regulator
Aeronautical charging
Approvals for future expansion / development plans
legal structure / corporatisation
Corporatisation of state enterprise into commercial legal entity to be started without delay as a prerequisite to privatisation
An administrative process that requires planning with implications on privatisation timetable
Capital structure considerations
social issues / employees
Incentivisation for management and employees
Employees share option scheme
Enhanced productivity and efficiency
Trade union considerations
privatisation option
Trade sale
IPO
Dual track
Size of stake (majority vs minority)
Cornerstone investor
Land / infrastructure ownership
Determining assets to be privatised
Concession
Leasehold
Freehold
Which assets (national security/concern issues)?
Defining a strategy: Privatisation should be structured to achieve the Government's objectives, taking into consideration implications for the business and potential investors. Reveley and Tull (2008) characterise generic privatisation objectives like government funding requirements (future and present proceeds), the promotion of regional development, facilitation of greater corporate flexibility, an expanding public ownership base, the optimisation of infrastructure, obtaining operating efficiencies, improvisation of services/ modernisation or that it encourages management and employee business involvement.
By applying these in a privatisation strategy the main considerations are:
Government
Infrastructure requirements
Public policy
Tariffs and regulations
Regional development
Employee rights
Ownership
Business
Expected growth in demand
Infrastructure/investment requirements
Operations
Management
Capital structure
Investors
Universe of investment opportunities
Availability of financing
Returns required
Attractiveness of assets
Commercial freedom and management influence
The next step, following these considerations is the transaction structure. The different privatisation structures are a majority sale, strategic partner, cornerstone investor, IPO, lease/concession, management contracts, BOT/BOOT/LPO and perpetual franchise. Possible are control mechanisms in the manor of operating licences, economic regulation, re-franchising, health and safety, legislation, equity ownership, legislation, shareholder agreements, corporate governance or special shares. Whereby the control is separated from the ownership.
In the case of airports, airport privatisation can be broadly divided into two main categories which may or may not involve the transfer of ownership of the asset. Privatisations in Europe to-date have mostly resulted in the transfer of asset ownership from the Government to the private sector (Hodge, 2006).
Summary of key preparatory steps required for PA:
Concerning the corporate status, PA must become a “privatisable” entity. The transformation from state entity to a joint-stock company should be completed prior to privatisation. The relationship between Prague Airport and other regional airports must be clarified, with particular attention to Prague Airport’s shareholding. The capital of the company or the concession to operate it must be freely transferable.
With reference to regulatory/legislative obligations, the high degree of natural monopoly ensures that airports are strictly regulated within the EU context. The need for independent regulator has to be checked and if the current Civil Aviation Act 1997 provisions are sufficient. The ability of PA to manage state property post privatisation must be reviewed and facilitated to the extent necessary for the free management of the airport activities.
Pertaining the corporate governance key issues are a management independence from shareholders, a balance of executive/non-executive directors, audit procedures, Board committees. This may be important from an international listing’s point of view.
Finally relevant for financial reporting is, that the reporting is already carried out under IAS.
(b) IPO: equity capital markets considerations
The interview process showed what Chang (2006) specifies, that a successful IPO of PA would depend on a number of structuring considerations namely:
Equity market conditions: Favourable EMEA equity markets with strong liquidity and interest in the CEE region providing a positive momentum for infrastructure plays.
Listing locations: Choosing a location which guarantees access to the widest possible investor base. International investors are comfortable with locally listed shares on the Prague Stock Exchange, strong domestic demand.
Maximising competitive tension among investors: Creating a momentum among a wide group of institutional investors – local, UK, US. Accessing retail investor demand will ensure a stable shareholder base and provide support in pricing.
Selecting the right bank syndicate: Select the lead managers with the right credentials to structure and execute the transaction. Limit size of syndicate to ensure appropriate allocation of responsibilities and accountability for the transaction. Design remuneration structure to incentivise all members of the syndicate.
Timing the IPO: Time the transaction in the context of competing CEE IPOs and EMEA transport IPOs. Market ‘windows’ subject to availability of financial accounts. Analysis indicates that Feb-March, May-June and September are historically the busiest pricing windows (Source: Bloomberg).
(c) Majority sale
‘Privatisation, with its ultimate objective of raising economic efficiency, has been central to the transformation of the economies of Eastern Europe and Russia. The perception of foreign direct investment in the privatisation process of transitional economies is often shrouded in emotional prejudice and daily political needs, remote from rational economic considerations. Eastern Europe is no exception to this trend.’ Rojec (2001).
Within the interview process the author discovered a wide universe of potential bidders. The key potential investors might be:
Airport operators (e.g. Fraport, Aeroports de Paris, Vienna International Airport).
Investment criteria: More selective than other investors, given limited synergy benefits. Situations where management expertise (e.g. in retail operations) can enhance returns
Situations pursued: London City Airport, Budapest, Bulgarian airports, Bratislava/Kosice, Brussels.
Infrastructure investors: (e.g. Macquarie, Hochtief, Abertis, Goldman Sachs, Babcock & Brown, Ferrovial)
Investment criteria: Seek IRRs between 10-15%. Increasingly aggressive and asset-hungry.
Situations pursued: Milan, Budapest, Bulgarian airports, Bratislava/Kosice, Budapest, BAA, Milan, Brussels.
Government investment funds (e.g. GIC, Caisse de dépôt et placement du Québec, Mubadala, Ontario Teachers’ Pension Plan, OMERS/Borealis)
Investment criteria: IRR of between 10-15%, medium-term investment horizon. Usually form consortium and take minority stake. Pension funds attracted to effective index-linked returns matched with their liabilities.
Situations pursued: BAA, Hochtief Airport Capital (HTAC).
Financial sponsors (e.g. 3i, GE/Credit Suisse, AIG, Carlyle)
Investment criteria: Limited activity to date; likely to form consortium with infrastructure / trade partner.
Situations pursued: London City Airport.
‘To convince investors to fund your business, you'll need to address their chief concerns.’ (Gumpert, 2008).
Hence the author provides the investment strategies and criteria in infrastructure of potential investors of PA and their likely interest to invest in the asset.
Chapter 5 Analysis
Precedent airport transactions
High recent transaction multiples reflect both control premia and, more importantly, aggressive use of leverage (see Figure 5.1: Precedent airport transactions)
Within the last years there have been several Airport privatisations. See some examples of European IPOs in Figure 5.2: Airport privatisation – examples of European IPOs and Figure 5.3: Airport privatisation – examples of other IPOs.
The listing alternatives
As the optimal selling mechanism depends on the specific group (Draho 2005) there are several listing alternatives for PA. Whilst PA has a wide range of listing options, a PSE listing is a requirement. A secondary regional listing would need to be considered as a means to tap into incremental investor pool of demand and maximize valuation.
The result of the objectives
Optimum liquidity, valuation and after market trading
Successful IPO
A supportive shareholder base for future growth
Raise the profile of Prague Airport regionally and internationally
Potential acquisition currency
the interview partners and Draho stated, are three listing alternatives:
PSE
PSE + London listed GDR
PSE + secondary listing in CEE
Analyzing the three alternatives in detail delivers the following picture of listing pros and cons:
Alternative 1: Prague Stock Exchange (“PSE”)
This means a primary listing on the local stock exchange, with the key features
Only one listing and only one set of listing rules and continuing obligations
Local listing is essential to achieve MSCI inclusion
Minimum 3 years of audited accounts
This alternative has the pros, that it is one set of continuing obligations and promotes the local equity market.
Whereby the con is, that it excludes US$ only investors.
The alternative 2, PSE listing with London GDR secondary listing means a primary listing on PSE with a GDR listing in London (secondary listing).
The key features of this alternative imply that GDR maximises the investor confidence in regulatory practices and provides way in for investors who are unfamiliar with local equity. Furthermore it provides published or filed audited accounts for 3 years.
The pros of this alternative are, that the international profile of the company via a listing on one of the world’s major financial markets will increase and US$ proceeds will follow. As a GDR is a secondary listing there is a lower level of UK market continuing obligations than full UK listing.
On the other hand this alternative will provoke cons like increased regulatory burden for the company as it is necessary to comply with two sets of listing requirements. Additionally a split of liquidity and investors trade across two markets is possible.
Finally the third alternative, a primary listing on PSE and a secondary listing on a CEE regional market will comprehend that an additional listing in the region may boost the regional demand.
This is positive as it taps some of the regional demand and takes advantage of high liquidity/funds limits in regional markets. This denotes a potential valuation uplift due to additional demand. However an additional set of regulatory requirements.
Conclusion: A local listing will attract the core investor base in Prague Airport. A secondary CEE listing may be considered as a means to attract additional demand.
Referring on Callin (2007) global emerging markets specialists as well as CEE-focuses funds are expected to be the main source of demand for PA’s IPO.
Aeroports de Paris privatisation - case study
Issue summary - Key achievements
In 2006, ADP was the largest IPO carried out in France and the third largest in Europe by size (Source: Thomson Financial).
Within the interview the author found out, that ADP is the second French State transaction since 2004 that combined a primary and secondary share offering, and that it was unique in its structuration since the extension clause was entirely exercised with
Constraint of a maximum of 800m sold by the French State establishing a 29% free float post IPO...
… whilst securing a good rating thanks to a maximum 600m capital increase…
… therefore establishing a constraint on valuation
ADP attracted the strongest retail demand for a French infrastructure IPO with 2.6m retail orders in the French Public Offer, and an offer that was 4.5 times oversubscribed, thereby outperforming Sanef’s retail demand (1.6m retail orders and 4 times oversubscribed).
ADP was a 1,286m IPO. Los Echos (2006) described it as “Promising start on the stock market for Aeroports de Paris”. The newspaper Investir (2006) titled “AdP’s IPO is a true success, which is even more remarkable given that the Paris stock exchange was under great pressure lately”. The Wall Street Journal (2006) explained “AdP's earnings-growth visibility, secure cash flows and rosy air-traffic growth forecasts made it an attractive investment despite the recent decline in global equity markets”. Finally the International Financing Review (2006) wrote “At the IPO price, AdP was valued at a premium to Fraport of anywhere between 30% and 60% on a 2007 EV/EBITDA basis, depending on which estimates investors used, and around 50% on a P/E basis”.
Issue summary - French State objectives
Callin (2007) agrees to the interview partners as the objectives of the French state 2006 had been
Succeed in executing the flotation of the last public company after EDF, GDF, Sanef, APRR, ASF and Snecma; prepare the company for market competition
Provide the company with the means to implement an ambitious investment program…
…enabling the company to develop its commercial activities and to benefit fully from the traffic growth
Retain a majority stake for the State (at least more than 50%)
Achieve a fair valuation for ADP to ensure minimal dilution for the Government consistent with good after-market performance
Give the company a financial structure in line with an AA- rating (S&P)
Continue to develop an equity culture with retail investors in France
Give all employees the opportunity to invest in the company’s future
ADP capital evolution - requirement that the state keep at least 50%
Capital structure post IPO:
Before the IPO, the French State owned directly 100% of ADP
Post IPO and exercise of greenshoe, free float and employees' stake amount to 32.5% of the capital, leaving a 67.5% participation for the State (Source: Thomson Financial)
The free shares granted by the State to the employees will then reduce its holding to 67.2%
Post IPO the state hold 67.5%, retail investors 14.6%, institutional investors 14.6% and employees 3.2%. The freefloat was 29.2% on the basis of an employee offering totally subscribe and allocated.
Peers performance in May-June 2006
Over the last month preceding the IPO, the peers have suffered from poor capital market conditions. Fraport was the most affected company, losing 11% since 31th May, mainly due to its previous strong performance and its lower level of liquidity.
The OFT review of BAA triggered additional volatility in the stock, the director of an Investmentbank explained. BAA stock continued to increase on a raised Ferrovial bid and a competitive bid from Goldman Sachs until the management’s approval of the former (6 June 2006). See also Figure 5.4: Peers performance in May-June 2006.
Demand evolution during bookbuilding
The institutional offer was subscribed by June 7th at the institutional offer price. The total offer was subscribed on June 6th. The institutional offer was 3.8x oversubscribed at the institutional offer price whereas the retail offer was 4.5x oversubscribed (see Figure 5.5: Cumulative demand day by day in euro million).
Transaction highlights
The book showed a strong presence of French investors, greater than similar large French IPO books. Tier 1 represented more than 47%, while Tier 1 and Tier 2 represented 70% of the book (Source: Thomson Financial).
AdP aftermarket performance - First trading day
Numerous investors reinforced their positions or created new ones the first day of trading enabling a +6.1% performance on that day (at the high point).
As Bloomberg data shows, the first opening was 45.6, i.e. +1.3% versus institutional price offer, and +3.6% versus retail price offer. Last price first trading day was 45.5, up +1.1% to institutional offer price. Price equilibrium was set between 48 and 49 during first week of trading. (See also Figure 5.6: First day’s trading & Figure 5.7: Market data on 16/06/06)
The ten largest orders on the first day of trading are illustrated in Figure 5.8: 10 largest orders on the first day of trading.
Chapter 6 Conclusions
The author agrees to Porter (1979) concerning its five forces analysis, particularly to the intensity of competitive rivalry. As for the aviation industry, this is the major determinant of the competitiveness of the industry. This becomes glaring by differentiating PA from key competitors as a conclusion.
The author agrees to Levitts’ (1983) proposed definition for corporate purpose which is to create and keep a customer. Furthermore the author based the analysis on the ideas, which are consistent with those of Yip (1989) and Saldanha et al (1997):
1. The most competitive companies incorporate superior reliability as well as quality into their cost structures to offer the best value of product at the best combinations of price.
2. We better know everything about the global standardized market, instead of knowing a lot about many customized markets.
3. Different Strategies need different approaches for implementing these strategies. Several strategies can be viable for successful globalization.
4. Global competition is becoming the issue of great importance for most global companies.
Bearing this in mind, some issues require addressing when considering Prague Airport. As the author explored some potential issues and mitigating factors.
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