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OTPP Swaps Assets With Australia's MAp Group

Leo Kolivakis's picture




 

Via Pension Pulse.

Sonali Paul and Narayanan Somasundaram of Reuters report, Australia's MAp agrees asset swap with Canadian fund:

Australia's
MAp Group has agreed to swap airport stakes with Ontario Teachers'
Pension Plan to beef up its holding in Sydney Airport in a deal worth
A$1.6 billion ($1.7 billion), and flagged a possible cash return to
shareholders.

The operator of
Sydney airport will exchange its stakes in Brussels Airport and
Copenhagen Airports for OTPP's 11 percent stake in Sydney Airport and
A$791 million in cash, as it looks to simplify ownership of Australia's
top airport.


The cash component was slightly lower than
flagged when the proposal was announced in June, mainly due to the
strengthening of the Aussie dollar against the euro.

 

After the
deal, it will own 85 percent of Sydney airport and said it expected to
make about A$1.5 billion available to MAp investors when the deal is
completed, slated for the fourth quarter of 2011.

 

While
MAp is trading its stakes in Brussels and Copenhagen airports for below
their last valuation at A$1.94 billion, giving way to some concern,
investors were still satisfied that the group was making progress on its
plan to get out of other airports to focus on Sydney.


"It's disappointing they've decided to do it at this particular point in
time when we're mid-way through the recovery in asset valuations," said
Will Seddon, analyst at White Funds Management, which owns MAp shares.

 

"But that said, it cleans the structure up a lot and gives them absolute control of Sydney, which is a very good asset."

 

MAp shares rose 1.5 percent to A$3.44, underperforming the broader market , which rose 1.8 percent.

 

No decision has been made yet on exactly how MAp may return cash to shareholders, a MAp spokeswoman said.

 

"I guess they'll probably keep some powder dry for what opportunities
may come up with respect to Sydney, but apart from that, the best thing
they could do is return it to shareholders," Seddon said.

 

The
biggest block to MAp taking full control of Sydney airport is German
construction group Hochtief , which is trying to sell its airport
concessions as a whole, including a 12 percent stake in Sydney airport.


OTPP
will end up with a 39 percent stake in Brussels Airport and a 30
percent stake in Copenhagen Airport, adding to its airport holdings in
Birmingham and Bristol in Britain.


"We
believe that Brussels and Copenhagen Airports are excellent
opportunities that strongly reflect our investment criteria and our
long-term investment horizon," Stephen Dowd, senior vice-president of
OTPP's Teachers' Infrastructure Group, said in a statement.


The Danish government remains the single biggest shareholder in Copenhagen Airports with a 39.2 percent stake.

 

Shares in Copenhagen Airports traded up 2.3 percent at 1,647 Danish
crowns ($313.6) by 0724 GMT. ($1 = 0.934 Australian Dollars)
($1=5.252 Danish Crown)

Ontario Teachers' put out a press release on their website, Teachers’ invests in premier European airports:

The
Ontario Teachers’ Pension Plan (Teachers’) has reached an agreement
with MAp Airports (MAp) to exchange its interest in Sydney Airport and a
cash payment for MAp’s interests in Brussels Airport and Copenhagen
Airport.

The transaction will result in Teachers’ Infrastructure
Group adding to its current airport holdings with ownership of 39
percent of Brussels Airport and 30 percent of Copenhagen Airport. MAp
will receive Teachers’ 11 percent interest in Sydney Airport plus a
cash payment. The transaction is expected to close in 2011, subject to
regulatory approvals.

 

“We believe that Brussels and Copenhagen
Airports are excellent opportunities that strongly reflect our
investment criteria and our long-term investment horizon,” said Stephen
Dowd, Senior Vice-President, Teachers’ Infrastructure Group. “As
experienced airport investors, we look forward to working with the
Belgian and Danish governments and other stakeholders to develop the
full potential of these airports.”

 

Teachers’
Infrastructure Group’s other airport investments are Birmingham
Airport and Bristol Airport, which are jointly controlled alongside
other shareholders. Teachers’ Infrastructure Group makes investments
that are subject to a fair and transparent regulatory framework and
that generate stable, low-risk, long-term returns to help meet the
plan’s pension obligations.

 

With $107.5 billion in assets as of
December 31, 2010, Teachers’ is the largest single-profession pension
plan in Canada. An independent organization, it invests the pension
fund's assets and administers the pensions of 295,000 active and
retired teachers in Ontario. For more information visit www.otpp.com.

Some comments on this transaction. First, I have never been to Australia
(my dream is to swim with Great White Sharks at the Great Barrier Reef).
Was at the hospital yesterday morning as part of some research study on transcranial magnetic stimulation in Multiple Sclerosis
and one the Master's student shocking me with magnetic pulses was from
Melbourne. I asked her why she decided to move to Montreal and she told
me she followed her heart, married and moved here but she misses
Melbourne and thinks the winters are brutal here (they are but so far
we're having an amazing summer).

I do, however, know Brussels
well because my mother and stepfather have been living there for the
last seven years (he's a diplomat for the government of Quebec). I love
that city. It's clean, classy and full of diplomats so most of the
people are educated and cultured. You can drive to other cities like Bruges
where you can visit museums and walk around to see amazing historical
sites. Brussels is the hub of Europe. You can literally go anywhere from
there. And the beer, fries and restaurants are awesome. Just writing
about it makes me want to go back soon!

As for Copenhagen, it's a
busy European airport so this too is a great asset for Ontario
Teachers'. The terms of the deal are favorable for Teachers' and we'll
see how MAp Group fairs out with its controlling stake in Sydney
airport. I was told that group Hochtief, the German infrastructure
powerhouse, is fighting off a takeover and is liquidating assets, so
this could be a stumbling block for MAP taking full control. And just like Canada, Australia is going through its own bubble, dangerously overheating which could spell big trouble down the road.

All
this to say that I think Teachers' did a good move here. However,
airports are not always profitable ventures for pension funds. The
Caisse de dépôt et placement du Québec, Canada's largest pension fund,
took a huge writedown in 2008 from its troubled investment in British Airports Authority (BAA).
These deals are complex and if the terms are wrong or all risks are not
evaluated properly, pension funds will lose in the high stakes game of
infrastructure investments.

 

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Wed, 07/20/2011 - 15:21 | 1474762 Leo Kolivakis
Leo Kolivakis's picture

***Feedback***

A senior pension fund manager was kind enough to share his thoughts:

“High stakes game of infrastructure investing”? These are supposed to be low risk, stable assets serving LDI purposes. They are usually priced to provide enhanced bond like return and duration outcomes. Unfortunately, these assets are often way more cyclical than people chose to believe, and are often financed like LBO’s, which further exacerbate the cyclicality. That’s why not all pension plans believe infrastructure provides for suitable risk/reward. Too bad more pension plans don’t do greenfield projects. That’s where the social need is. Trading and financial engineering built assets is indeed a game. I am not playing a game, I am trying to create profits to pay pensions. It may be a decent investment, I don’t know enough about it. But just reminding how the deal making excitement and profile can eclipse the post deal follow through on how things actually work out.

Wed, 07/20/2011 - 13:43 | 1474403 Financial Newbie
Financial Newbie's picture

"Was at the hospital yesterday morning as part of some research study on transcranial magnetic stimulation in Multiple Sclerosis"

 

Really?
And what did you have for breakfast yesterday?  Did you ride a bus or take a cab?  And what colour was that sh*t you took in the morning?

Because, clearly, these details help me navigate my pension through stormy financial waters.

 

-FN

 

Wed, 07/20/2011 - 15:22 | 1474767 Leo Kolivakis
Leo Kolivakis's picture

Umm, my blog, don't answe to you or anyone. Capiche?

Wed, 07/20/2011 - 12:21 | 1474127 all_in_now
all_in_now's picture

"These deals are complex and if the terms are wrong or all risks are not evaluated properly, pension funds will lose"- thats right, how about the pension plans assholes doing these "deals"? Will they lose too? Nah.

Wed, 07/20/2011 - 10:40 | 1473627 sherryw
sherryw's picture

Your dream will remain just that. The great white sharks are largely in South Australia - several thousand km from the Great Barrier Reef.

Wed, 07/20/2011 - 10:23 | 1473564 bank guy in Brussels
bank guy in Brussels's picture

Leo Kolivakis wrote:

« Brussels ... I love that city. It's clean, classy ... most of the people are educated and cultured ... the beer, fries and restaurants are awesome. »

Thanks for the nice words about our home city here!  ... Though in truth Brussels is slightly scruffy in parts, sort of a truly bohemian and much smaller Paris ... but it's indeed a terrific place to live, quite affordable in cost of living, while offering a gracious and genteel lifestyle.

Coincidentally, I was just outside the Québec diplomatic offices recently ... hope we'll see you here again, Leo!

Wed, 07/20/2011 - 10:37 | 1473612 Thisson
Thisson's picture

We'll trade you Leo for a lifetime's supply of Leonidas

http://www.leonidas-chocolate.com/

 

 

Wed, 07/20/2011 - 10:22 | 1473557 Cpl Hicks
Cpl Hicks's picture

I am trying and failing to think of a pension fund anywhere in the world of less importance than the OTPP.

Help me out- is there a plan for the Ulan Bator Municipal Dust Collectors? The Tehran City Dog Hair Impound Guild? Maybe somewhere...

Wed, 07/20/2011 - 10:17 | 1473546 nmewn
nmewn's picture

;-)

"First, I have never been to Australia (my dream is to swim with Great White Sharks at the Great Barrier Reef)."

Wed, 07/20/2011 - 10:07 | 1473511 GeneMarchbanks
GeneMarchbanks's picture

Nice triple post Gene P;)

Leo I hope your dream of swimming with Great White sharks comes true. Followed by your worst Nightmare which is, coincidentally, my dream.

Wed, 07/20/2011 - 09:56 | 1473477 Gene Parmesan
Gene Parmesan's picture

Dupe

Wed, 07/20/2011 - 09:56 | 1473476 Gene Parmesan
Gene Parmesan's picture

Dupe

Wed, 07/20/2011 - 09:56 | 1473469 Gene Parmesan
Gene Parmesan's picture

These public employee pensions can afford to make these sorts of crazy, high risk "investments" because they know that the taxpayers will always be there to serve as a backstop in the event of any major problems. Utterly ridiculous.

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