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Sydney Airport’s sale encapsulates the public vs private infra argument

The debate over Sydney Airport's sale price reflects a disparity in how public markets and private investors assess the value of infrastructure assets.

Take-private deals were a major theme of 2021, with Australia having seen a glut of them since the start of the pandemic.

There were so many, in fact, that few infrastructure businesses are left on the Australian Securities Exchange.

One of the largest, Sydney Airport, is almost certainly going to complete its journey next week into the hands of a consortium of private infrastructure investors, in one of the largest M&A deals ever seen Down Under, across any sector.

But the journey has not been without turbulence. Recently, in the run-up to the shareholder vote on the deal on 3 February, some smaller shareholders have been raising concerns that the airport’s board agreed to a sale too quickly, undervaluing the business.

These criticisms neatly sum up some of the arguments around the perceived benefits of long-dated institutional investor ownership of critical infrastructure assets, versus the more short-term demands of public markets.

One of these noisy small investors said the airport’s share price was “artificially depressed” at the time of the bid led by IFM Investors and Global Infrastructure Partners, according to reporting in the Australian Financial Review, arguing that “travel will return and the airport will thrive once more”.

“The purchasers obviously agree with me, otherwise they would not be making a bid,” added the shareholder, Joe Cambria.

Well, he has a point, even if the purchasing consortium might argue that their offer allows shareholders to realise a return that is higher than the current share price.

Infrastructure investors aren’t in it for fun, or for the kudos of owning nation-building assets of significance. They want a financial return and it’s clear the Sydney Aviation Alliance believes it will get one despite the huge price tag attached to this deal, even though that price tag is far lower than it would have been before the emergence of covid-19.

The crucial point is that investors such as IFM (even if perhaps not others in the consortium) will be quite happy to hold on to Sydney Airport for a very long time, not even ruling out owning it for the duration of its lease, which expires in 2097.

The firm’s head of Australian infrastructure Michael Hanna told us in 2018 when discussing the firm’s fund structures: “In an open-ended construct, you’ve got no constraints on looking after what we think are the best interests of an asset and the people using it. That’s liberating.”

Sydney Airport will no longer be subject to the endless cycle of quarter investor updates, annual reports to shareholders and the ripple effects of stock market disruptions. As Hanna says, it will be liberated from that, and free to look to the very long term future.

The asset is crucial to Sydney’s (and by extension Australia’s) connection to the outside world, even if that connection has been somewhat choked off since early 2020.

It makes perfect sense that long-term infrastructure capital can see the big picture in a way that the structure of public markets often does not allow.