Auckland and Manukau City Councils say they will spend $28 million on new shares in Auckland International Airport.
The airport company announced a $126 million capital-raising this morning, with the money being used to help fund its purchase of a stake in two Queensland airports.
By taking up their offer of new shares, the councils retain their stakes in the airport at current levels - 12.71 per cent for Auckland City and a little over 10 per cent for Manukau.
"Auckland City Council has re-affirmed our position that we are not going to sell strategic assets and consequently we are going to take the discounted share offer at a cost of $15 million," said Auckland mayor John Banks. "We see the shares at this time being substantially undervalued with a lot more potential for growth."
Manukau City mayor Len Brown said Manukau ratepayers would be "absolutely delighted and supportive" of the council's purchase. Many Manukau ratepayers worked at the airport, he said. The Manukau council owns a little over 10 per cent of the airport company.
"The ratepayers of Manukau are totally behind our interest in the airport and they are completely supportive of the reasons why we are in the airport for strategic reasons, economic reasons," said Brown.
Under the deal, known as a " pro rata share entitlement offer" all eligible shareholders will be entitled to subscribe for 1 new share for every 16 shares held at 7.00pm on February 1, with the new shares priced at $1.65 each. The shares closed on the NZX yesterday at $1.92 each.
Airport shares are currently in a trading halt, which is expected to be lifted after the institutional component of the offer is finished. This is likely to be at the start of trading on Tuesday, February 2.
Money raised will be used to pay for its purchase of 24.55 per cent of
Cairns and Mackay airports in Queensland, Australia for $166 million.
That deal was financed from existing debt facilities and Auckland Airport will use the proceeds of this ffer to repay a portion of the debt drawn down to pay for it.
Manukau City Council owns 10.01 per cent of the airport company.
Some investors have questioned the company's approach to the Queensland deal.
"It's a very small acquisition, but there are a whole lot of unanswered questions" about the strategy of the company and what the future capital requirements of further expansion will be, said Rickey Ward, equities manager at Tyndall Investment Management. "It needs to signal its future growth aspirations, and if it wants to be an investment company, it will be rated accordingly."
Goldman Sachs JBWere downgraded its earnings estimate for the company by 5 per cent and called the Queensland initiative an "expensive experiment."
The shares have slid 6.9 per cent this year, and shed 10 cents since January 11, when the company announced the deal.
Ward expects institutions to take up the offer to prevent their holdings from being diluted, though people will remain sceptical until they get more details of the airport's strategy.
There are four parts to the equity raising announced today, which the company says is a first for New Zealand investors:
• An institutional entitlement offer: the joint lead managers will seek to approach all eligible institutional shareholders, who each can take up all, part or none of their entitlements by 2pm on January 28.
• The institutional bookbuild: new shares attributable to lapsed entitlements under the Institutional Entitlement Offer (including those attributable to ineligible institutional shareholders) will be offered to institutional investors in an institutional bookbuild on 29 January 2010.
• The retail entitlement offer: eligible retail shareholders will be sent a prospectus together with a personalised entitlement and acceptance form and each may take up all, part or none of their entitlements by 7.00pm on 18 February 2010.
• The retail bookbuild: new shares attributable to lapsed entitlements under the retail entitlement offer (including those attributable to ineligible retail shareholders) will be offered to institutional investors in a Retail Bookbuild on 22 February 2010.
The airport says the offer structure is a first in terms of equity raisings in New Zealand, "although this structure is well accepted and frequently used in Australia."
It says the offer structure provided "several benefits to shareholders" including:
• Retail shareholders eligible to take part in the offer will have the benefit of knowing the outcome of the institutional entitlement offer and institutional bookbuild prior to deciding whether or not to take up their entitlements.
• Shareholders will not be required to pay any brokerage or incur other transaction costs in order for their entitlements to be offered under the bookbuilds.
Under a traditional rights issue, shareholders selling their entitlements would generally be required to pay brokerage.
• Shareholders who, for any reason, would be unable to sell their entitlement under a traditional rights issue may in this offer still receive some value for their entitlement via any premium above the new share application price paid in the bookbuilds.
Under a traditional rights issue, those shareholders would receive no value for their rights if they were not sold during the rights trading period.
Company chairman Tony Frankham said the directors "considered the accelerated renounceable entitlement offer structure is preferable to other alternatives such as a traditional rights issue or private institutional placement."
"It achieves an appropriate balance between our desire to give existing shareholders the best possible opportunity to participate or alternatively potentially obtain value from their entitlement, while at the same time achieving a streamlined and efficient equity raising that benefits the company and safeguards the broader interests of all shareholders."
CHRISTOPHER ADAMS / BUSINESSWIRE
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