"Hong Kong airport float `could raise $10b'"

Friday, August 8, 2003

Airport float `could raise $10b'
The Standard


The privatisation of the Airport Authority could raise some HK$10 billion
for the government on the back of an expected valuation of at least HK$37
billion, market players predicted yesterday.

The market estimates followed a government announcement yesterday that it
was kicking off preparatory work to float the authority via an initial
public offering in 2005 at the earliest.

The authority is the statutory body that operates Chek Lap Kok airport. Its
net profit doubled to HK$502 million for the year ended March 31, while its
net asset value stood at HK$37 billion.

While authority chairman Victor Fung has hinted its valuation may not fall
under its net asset value, investment bankers were generally upbeat about
the IPO's ability to raise HK$10 billion.

However, they noted earnings would need to jump to about HK$2 billion if it
would like to achieve a market capitalisation of HK$40 billion and a price
earnings multiple (P/E) of an international average of 20 times.

``The ongoing strategic partnership between Hong Kong and Guangdong is
likely to boost the Airport Authority's bottomline,'' an investment banking
source said. ``Also, the Ebita [earnings before interest, tax, depreciation
and amortisation] margin of the authority is pretty strong compared to its
international counterparts.'' Nonetheless, he said the return of equity of
the authority, which stood at around 1 per cent as at the end of March, was
relatively low by international standards.

``Valuation of the asset base and a realistic return should be determined in
advance of the sale of assets to set appropriate expectations among
potential investors,'' said Giovanni Bisignani, chief executive of the
International Air Transport Association, which represents over 270 airlines.
``Benchmarking of airport capital and labour productivity against best
practice, as well as incentives to stimulate efficiency should be part and
parcel of the process.'' The P/E ratio of Hong Kong-listed Beijing Capital
International Airport was at 17.35 times, while London-listed British
Airport Authority was at 13.24 times.

Meanwhile, Standard & Poor's Ratings Services said the government's plan to
privatise the Airport Authority would not have an immediate affect on
ratings of the company.

``The reason for this is that discussions are only at the preliminary stage,
and it is too early to determine the potential impact privatisation would
have on the Airport Authority's credit profile,'' the rating agency said.

It said the privatisation plan, which will take about 18 months to prepare,
still needs to be drafted and the relevant laws must be passed. 


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