Grant Bradley: Wayne Brown and Auckland Airport - what did the Mayor know?

Travel is bouncing back through Auckland Airport and so is capital spending. Photo / Michael Craig

OPINION:

Many share market investors will have joined the queue of those trying to figure out what’s going on in Auckland Mayor Wayne Brown’s head.

His speculation in an open council meeting on the Auckland Airport’s future capital strategy caused a brief media flurry, an NZX-ordered trading halt in the company’s shares for about one hour, during which there was a reverse thrust clarification issued from the Mayor’s office.

Auckland Council owns an 18 per cent stake in the airport worth around $2 billion, and all, or most likely part of that, may be sold to raise money in the face of a council debt hole growing to close to $300m.

At the budget meeting, Brown speculated on Auckland Airport raising equity to fund the building of a new domestic terminal. He talked about the council’s shares being reduced in value soon.

Promptly posted media reports of Brown’s comments led to a quick response by NZ RegCo to impose a trading halt.

The comments coming from Brown, whose council is by far the biggest single shareholder in the airport, warranted investigation.

A capital raise to fund a $1 billion project is always a possibility and a subject of some quiet speculation among analysts and other followers of a company. But the musings today came from the wearer of the mayoral chains, no less, at a key meeting. What did he know?

It turns out, by the admission of his office, no more than what has been publicly reported. He was speculating like others in the investment community, the statement says and adds: ‘’The Mayor is not in possession of any information not available to the market.”

Just as well.

It seems the point Brown was trying to make was that if the airport decides to raise capital for any of the projects his office listed, this would require the council to either to participate in the raise with ratepayers’ or borrowed money or see its shareholding fall below the current 18 per cent.

But shortly after the clarification, Auckland Airport announced ‘’it has no plans to carry out an equity raise and we have made no announcements to the market in this regard’’.

Airport infrastructure is multi-generational and expensive, often running into billions of dollars. It is more often than not funded from debt. Airports also use aeronautical fees imposed on airlines to fund terminals and other infrastructure planes and passengers use, and a new round of these charges at Auckland are about to be set.

The company made it clear today that ‘’it was planning to fund the new domestic terminal with borrowings.’’

And debt is rising significantly.

Analysts Jarden have forecast the company’s net debt to increase from $1.5 billion to $4.3b at the end of 2027 and up to $7.3bn at the end of 2032.

“Importantly, we believe this capex can be fully funded out of debt.”

The Mayor’s office list of projects that will need to be funded by an ‘‘ambitious capital expenditure programme’' lists some projects that are already well underway, or parked up for the very long term, most notably a second runway.

Conventional wisdom says markets don’t like uncertainty. Mayor Brown, a potential seller of shares would do well to remember this ahead of any council stake being shopped around if he wants to get the best price.