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Auckland Airport considers $175M bond to fund capex, still sees strong demand

Thursday 23rd August 2018

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Auckland International Airport is considering raising $175 million via a bond issue towards the end of the year to help fund capital expenditure, as it undertakes a $2 billion infrastructure development programme

The announcement came during the airport's annual result release this morning, and on the following investor conference call, chief financial officer Phil Neutze said the bond may be spread into two tranches, and will be used to fund capital spending. 

Almost half the airport's $2.06 billion of debt is in bonds, with 34.6 percent, or $675 million, in fixed rate notes and 11.5 percent, or $225 million, in floating bonds. It has a $75 million floating rate bond that matures in October 2018. In the latest year, the airport repaid $200 million for two separate bonds which came due in October 2017 and raised $126.5 million via 10-year Australian medium-term notes paying 4.5 percent that same month. 

In the year to June 30, the airport's net profit nearly doubled to $650.1 million, boosted by the A$370 million sale of the airport's stake in North Queensland Airports. Underlying profit rose 6.2 percent to $263.1 million, on an 8.7 percent lift in revenue to $683.9 million. It anticipates an underlying profit of between $265 million and $275 million in June 2019, and expects capital expenditure of between $450 million and $550 million.

On the investor call, chief executive Adrian Littlewood was confident about future passenger growth as analysts questioned whether demand from both New Zealand outbound and international inbound passengers was softening on price increases. Much of the airport's revenue comes from passenger charges, and international passengers are especially valuable, each generating about four times as much revenue as a domestic passenger.

In 2018, the airport lifted international passengers excluding transit by 4.7 percent to 10.2 million, and domestic passengers by 7.7 percent to 9.2 million. It earned $179.1 million in passenger services charges, up 2.8 percent on 2017. The rest of its revenue came from $122 million in airfield landing and parking charges, $190.6 million from retail, $61 million from car parking and $97.6 million in rental income.

Littlewood said that while there may be a shift in New Zealanders' travel patterns - for example, people may choose to go to Australia's Gold Coast rather than Hawaii - "people still want to go on holiday". On the flipside, he said the weakening New Zealand dollar "can only help to attract inbound passengers" and "there is a significant number of people for whom a couple of bucks' change in ticket prices" won't deter them from visiting. 

He said limited supply and higher prices in the hotel sector possibly contributed to flatter arrivals from countries such the United States and Japan in the last quarter of 2018 and the beginning of the 2019 financial year, but "anecdotally, pricing for some hotels is moderating somewhat" and New Zealand is not a super high volume destination. Littlewood also noted the lack of significant sporting events such as the World Masters Games and the British & Irish Lions rugby tour, which both occurred in the 2017 financial year.

There's also still growth to be had from China - the airport's third-largest source of passenger arrivals in the latest year, and up 10.9 percent in that time - both in new routes to tier two cities and engaging with new carriers, he said.

Littlewood said in his conversations with Chinese carriers, they are positive about New Zealand as it drives a good yield for them.

"On a macro level, the rest of the world is not as open as New Zealand and Australia for some carriers trying to grow internationally," he said. "They see us as open and willing for those carriers to come in."

The shares fell 0.4 percent to $6.89. 


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