"Mexico airport privatization seen as high as $1 bln"

Wednesday, February 22, 2006

Mexico airport privatization seen as high as $1 bln
By Noel Randewich


MEXICO CITY, (Reuters) - Mexico's government could reap $1 billion this week
when it lists airport operator GAP on the stock market in the biggest
privatization in years.

The government is expected to sell its 85 percent stake in Grupo
Aeroportuario del Pacifico, which operates 12 airports in Mexico, including
busy destinations like Guadalajara, Tijuana and Puerto Vallarta, for between
$18 and $20 per U.S.-traded share.

Two-thirds of the government's 85 percent stake in the company, known as GAP
and expected to be priced on Thursday, will be sold to U.S. investors as
American Depositary Receipts, according to a presentation to analysts. One
American Depositary Receipt is the equivalent of 10 local shares.

The sale of GAP will be the largest privatization in Mexico under President
Vicente Fox, who took office in 2000.

It will also be Mexico's biggest initial public offering in more than a
decade. A company director was expected to ring the opening bell at the New
York Stock Exchange on Friday.

Strategic partner AMP, whose owners include Spanish airport operator Aena,
owns a 15 percent stake in GAP.

The share sale is the highlight of a broad government plan to put the
airport industry, which operates based on long-term concessions handed out
by the government, in the hands of private enterprise.

The government began selling shares in Asur (ASURB.MX: Quote, Profile,
Research) (ASR.N: Quote, Profile, Research), which operates the
tourism-driven Cancun airport, in 1998, and since then has unloaded the
remainder of its stake.

When the government privatized Asur, it divided the company between several
minority investors and gave it a corporate government structure that has
made it one of the most transparent companies in Mexico, where most firms
are dominated by tightly knit families.

A similar structure is planned for the GAP sale.

DIVERSIFIED PLAY

Analysts describe GAP as a broad airport play built around several important
airports, compared to Asur, which gets most of its revenue from its crown
jewel, the very busy Cancun airport.

That dependence on Cancun has hurt Asur since last October when Hurricane
Wilma lashed the Yucatan peninsula, cutting travel to the region. Asur's
fourth quarter profit slumped 97 percent.

"What investors like about GAP is that their portfolio of airports is more
diversified," said Luis Antonio de Leon, an analyst at Banif Investimento in
Mexico City.

Relying on airports in cities like Tijuana and Guadalajara, where regular
airline flights outnumber seasonal tourist flights, helps GAP keep revenues
predictable, said Actinver analyst Mauricio Brocado.

"GAP is less exposed to charter flights, which depend on demand," he said.

A discount airline industry, just beginning to take off, should eventually
increase air travel to large cities like Tijuana, Guadalaja and Monterrey,
boosting revenue for all airline operators.

Brocado estimated that at the expected offer price of at least $18 per New
York-traded share, GAP would be somewhat cheap compared to Asur, based on
comparisons of earnings before interest, tax, depreciation and amortization,
or EBITDA.

At $18 to $20 per share, GAP would also give a dividend yield of as much as
6 percent, about double what Asur's shares pay out, said Brocado, who has
set a $25.45 target price for GAP over the next 12 months.


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