One of the world’s biggest sovereign wealth funds is part of a consortium that is plotting a bid for London City Airport, which has been valued at £2bn.
Wren House Infrastructure Management, which is an investment vehicle owned by the Kuwait Investment Authority; Canadian giant Ontario Teachers’ Pension Plan; and investment firm Hermes have teamed-up to make an offer for the airport, according to sources in the infrastructure sector.
The KIA is the world’s fifth largest sovereign wealth fund with some $592bn in assets.
The trio will come up against a group led by the infrastructure arm of Australian financial group Macquarie, which is also understood to be preparing a rival approach for London City.
Suitors are scrambling to position themselves for a bidding war after private equity house Global Infrastructure Partners revealed earlier this month that it had put the airport up for sale.
GIP, which owns 75pc of London City as well as Gatwick and Edinburgh airports, bought the airport nine years ago for around £750m. It is thought that a sale could fetch up to £2bn. Earlier this week it emerged that GIP had hired Credit Suisse to handle the disposal of London City. Oaktree Capital owns the remaining 25pc of the airport and has agreed to the sale.
London-based Wren House was set up in 2013 to facilitate direct infrastructure investment by Kuwait’s sovereign wealth fund. Kuwait was part of a consortium that unsuccessfully attempted a £5bn takeover of water utility Severn Trent two years ago.
OTPP, which manages about C$154.5bn in assets, is one of Canada’s largest investment houses and is a major player in British infrastructure. It took sole ownership of Bristol Airport last September, holds a stake in Birmingham Airport, and, along with fellow Canadian pension fund Borealis Infrastructure, owns High Speed 1, the company behind the rail link between London St Pancras and the Channel Tunnel.
Hermes is also a key investor in the infrastructure sector and, together with the Canada Pension Plan Investment Board, bought a 30pc stake in Associated British Ports for about £1.6bn earlier this year.
Macquarie Infrastructure and Real Assets, which is planning its own consortium bid, was bought out of Bristol Airport by OTPP.
London City is close to Canary Wharf and is a popular airport for workers in the financial services sector. It expects to carry about 4.1m passengers this year, up from 3.7m in 2013 and 2.8m in 2010. The airport is targeting 6m passengers a year by 2023.
Despite the strong growth, a sale of London City is likely to be complicated by uncertainty over its £200m planned expansion. Boris Johnson, the London mayor, blocked a proposal to grow the airport earlier this year, a month after Newham council approved the plans. The airport is now appealing the mayor’s decision.
A spokesman for Hermes said: “We do not comment on market speculation”. Spokesmen for OTPP and Macquarie declined to comment. Wren House did not return requests for comment.
GIP to put London City airport up for sale this year – might raise £2 billion?
August 6, 2015
London City airport is to be put up for sale by GIP by the end of the year, who want to capitalise on the rising global demand for air travel. GIP owns 75%, with Oaktree Capital owning the remainder, but both have agreed to the sale. GIP also has the main stake in Gatwick airport, and Edinburgh but say they are not selling these now. It is thought the airport might fetch as much as £2bn, which the FT says would be a multiple of over 60 times the company’s EBITDA in 2014. GIP bought the airport for about £750m in 2006 from Dermot Desmond; he had paid £23.5m for it in 1995 from Mowlem. The airport is trying to get planning consent for work to increase the annual number of passengers to 6 million per year by 2023, (4.1 million in 2014) but this has been blocked by Boris, due to noise. London City is appealing against this and may hear the outcome next year. City airport has already been granted permission to increase ATMs from 70,000 to 120,000 per year. It is widely believed that GIP would sell Gatwick soon, after the government makes a decision on if/where there might be a new runway. Last month, GIP said it would be prepared to give a legally binding promise that it will not sell out for a quick profit if the government decides to opt for a runway at Gatwick.
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