The share price for Auckland International Airport Limited [NZX:AIA] has jumped 5.75% this afternoon after coming off a trading halt.
Auckland Airport is the main gateway into New Zealand and acts as the country’s biggest transportation hub.
It previously served over 20 million passengers annually. It has a strong presence on the New Zealand Stock Exchange, as well as the Australian Securities Exchange.
The company’s share price is currently $5.33, and it has a market capitalisation of $6.12 billion.
Why has the Auckland Airport share price risen?
The coronavirus has had most significant impact on two large New Zealand businesses — Air New Zealand [NZX:AIR] and Auckland Airport. With large-scale capital projects in the pipeline, there’s been much concern over the airport’s balance sheet.
To allay these concerns and provide strengthened capital to get through the crisis, the company announced on Monday the strengthening of its balance sheet with an equity raise.
Today the company announced successful completion of the first tranche to institutional investors. The $1 billion raise saw strong global demand. The placement was fully subscribed at the book-build price of $4.66 per share.
There is still the Share Purchase Plan to retail investors to come, allowing many shareholders to increase their share or retain it without dilution.
Here are the key details of the overall raise for [NZX:AIA]
- Auckland Airport is seeking to position itself strongly for recovery. What we don’t yet know is how long that recovery will take and the pain period required getting there. It’s easier to lockdown travel than resume it.
- The airport is a critical piece of national infrastructure. This, we have no doubt, but there must be ability to generate positive return on the capital, sooner rather than later.
- The company is offering $1.2 billion to the market in new shares. This comprises the underwritten and now completed placement of $1 billion from institutional investors, and a non-underwritten Share Purchase Plan (SPP) of $200 million. In total, this represents about 19.6% of market capitalisation as of 3 April. We see the strong institutional support as a positive vote of confidence in this long-term infrastructure asset.
- Proceeds will be used to strengthen the balance sheet and provide continuity under a range of model scenarios — including a subdued travel environment lasting until the end of 2021.
- Existing shareholders on record as of 3 April will have the ability to apply for up to $50,000 of new shares at a price of around $4.50. This represents a 10.6% discount on the last close. The price could also be lower – as there’s provision to take a lower of this or a 2.5% discount on VWAP over the last 5 trading days of the SPP offer period.
- A discount over 10% is rare on an SPP for a blue-chip infrastructure stock. Average SPP discounts sit at around 10% for an entire range of shares. However, it must be said that the blue-chip claim here has been rocked during this coronavirus pandemic shock.
- The Share Purchase Plan has not been underwritten, meaning it may be under or oversubscribed. We note that the $200 million SPP is a small portion of the overall $1.2 billion raise. We wouldn’t be surprised if many applications are scaled back — though the terms of the offer are to be announced in an offer document on April 9.
- Auckland Council may have other priorities over avoiding the dilution of its 22% share in the airport. If it does not participate in the SPP, the council’s share could dilute to around 18%.
Where could [NZX:AIA] go from here?
It depends on the resumption of air travel, both domestic and international.
Key customer Air New Zealand has been given a lifeline in the form of a government loan. However, the airline has indicated mass lay-offs and its likely re-emergence as a smaller, more domestic-focused carrier after the shock.
This could present a golden opportunity to acquire airport shares at a much-discounted price. Before the coronavirus hit, AIA was trading above $9.
Yet, this crisis has rocked the notion that it is bulletproof market infrastructure. And a full recovery is likely to take a long time, given the global impact on travel and tourism.
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