"Countdown to Sydney airport bids"

Monday, May 27, 2002

Countdown to airport bids
By Jane Boyle
The Australian Financial Review


The three groups vying for Sydney airport are scrambling to finalise bids in
the countdown to June 12, when binding offers are due for the $4.5
billion-plus privatisation of Australia's key airport gateway.

Sydney Gateway - comprising AMP, Deutsche Bank, Hastings Funds Management
and Hong Kong's Cheung Kong - and Southern Cross, led by Macquarie Bank and
Commonwealth Bank, had been viewed as the stronger bidders.

But they face competition from the ABN Amro-led Connect, which sources said
had overcome funding obstacles to firm as a contender.

The likely proceeds of the sale have been boosted, potentially by more than
$100 million, with the Federal Government's decision to end strict price
controls in favour of price monitoring at Australia's major airports at the
end of June.

The Government is expected to announce a preferred bidder soon after June
12, with a sale agreement to be finalised by June 30.

However, there are major challenges for the bidders. These include tough
funding constraints as a result of the Government's 51 per cent local equity
requirement and a tightening up of debt markets.

AMP and Macquarie hope to use Sydney as a cornerstone for listed airport
funds. Macquarie Airports raised $500 million earlier this year and has the
right to call on investors for a further $500 million.

AMP Henderson shelved a $650 million float of its airport trust after
September 11, but it could be revived if Gateway's bid for Sydney is
successful.

Sydney airport has lost about a year's growth in traffic as a result of
September 11 and Ansett's collapse, with numbers still depressed. Bidders
are grappling with the issue of whether traffic levels will resume prior
trends.

Also to be resolved is a long-term solution to war and terrorism risk
insurance. The Federal Government has provided temporary indemnity cover
since the global withdrawal of third-party war-risk insurance by the
insurance market after September 11.

It is in discussions with Australian and international organisations to
develop a longer-term plan, and is expected to make a further announcement
in the next fortnight.

The sale of Ansett's terminal back to Sydney airport has ended some
uncertainty for bidders and created flexibility in planning for future
growth and developing of retail activities. However, the airport has yet to
finalise rent arrangements with Qantas and Virgin Blue to use the terminal.

One bidder said the slots freed as a result of Ansett's collapse would help
ease capacity constraints and meant a second airport would not be needed for
at least 20 years.

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