Exclusive: Potential bidders circle around London City Airport

The auction of London City Airport (LCY), an asset majority-owned by US-based Global Infrastructure Partners (GIP), is about to enter its initial stage, according to people close to the matter.

Sources with knowledge of the process told Infrastructure Investor that an information memorandum on the sale is expected to be released later this week or at the beginning of next week. The timing of the mooted disposal has been uncertain since last August, when it emerged that GIP was seeking a buyer for its 75 percent stake in the airport, but the signs are that the auction will now properly kick off in October.

Market insiders expect the transaction to value the asset at up to £2 billion (€2.7 billion; $3 billion). It is understood that Los Angeles-based Oaktree Capital Management, which inherited its 25 percent stake in LCY through buying New York-based Highstar Capital in June 2014, is also looking to exit its investment in the business.

Despite the high level of attention the process has so far received, sources reckon there are likely to be only a relatively small number of bidders once the auction properly starts, given the deal’s size and complexity.

Among them will probably be a consortium led by Macquarie Infrastructure and Real Assets (Macquarie), the sources said. A group involving Allianz and Borealis Infrastructure, the infrastructure investment arm of the Ontario Municipal Employees Retirement System, as well as a tie-up comprising UK-based Hermes GPE, Ontario Teachers' Pension Plan (OTPP) and Wren House Capital Management, a subsidiary of the Kuwait Investment Authority, are also said to be eyeing a bid. Australia-based AMP Capital is also understood to be considering the opportunity.

Ardian, the French fund manager, and Ferrovial, the Spanish developer, won’t be bidding for the asset, sources said. Ardian bought Luton Airport, the UK’s fifth-biggest, jointly with Madrid-based operator AENA in 2013, while Ferrovial owns 25 percent of Heathrow Airport, London’s largest hub.

All of the firms cited above either declined to comment, did not respond to requests for comment or could not be reached for comment before press time.

Traffic at LCY hit a record last year, posting an 8 percent increase on 2013 to 3.65 million passengers. The airport plans to reach 4.1 million passengers for the whole of 2015 and 6 million by 2023.

GIP first invested in LCY in 2006 when it partnered with AIG Financial Products Corporation, a wholly-owned subsidiary of US insurer American International Group, to acquire the asset for £742 million.