Suitors Circling French Airports Sale

Bidders are lining up for the sale of France's stake in Nice Cote d'Azur and Lyon-Saint-Exupery airports, hoping to land increasing returns on the back of rising air traffic.

The sale of France's 60 percent stakes in two of the country's busiest airports offers investors relatively stable assets in a sector that increased passenger numbers by more than 5 percent last year to 3.21 billion, according to data from the World Bank.

Competition between rival hubs and the airlines they serve means that Nice, as the bigger and more developed of the two airports, is the more attractive proposition, because of higher earnings and more popular routes.

Nice, on the French Riviera, is a trophy asset with a total value of at least EUR€1.5 billion (USD$1.67 billion), they said, while Lyon could be worth about EUR€900 million.

Prospective buyers are likely to have to part with at least EUR€900 million and EUR€540 million respectively for the majority stakes on offer.

Among the interested parties identified by people familiar with the matter are Australian investment group Macquarie, London City Airport backer Global Infrastructure Partners (GIP) and Industry Funds Management, which already has minority stakes in Vienna and Manchester airports.

Spanish infrastructure group Ferrovial and airport operator AENA, as well as Singapore's Changi Airport and Malaysia Airports, are also in the running, the sources said.

For all the talk of an imminent feeding frenzy, two of the sources said the field will be limited by the French government insisting that any lead bidder must have expertise in the sector.

Two further interested parties that would meet this requirement by virtue of previous airport investments are Canadian pension funds Ontario Teachers and Canadian Pension Plan (CPP), the sources said. Both funds declined to comment.

Sovereign wealth funds including the Abu Dhabi Investment Authority (ADIA), Singapore's GIC and Kuwaiti pension fund Wren House are also waiting in the wings, with Nice their preferred target, two sources added.

French infrastructure fund Cube and Geneva Airport have previously declared interest in Lyon, though the latter could face resistance.

Local business leaders acknowledge that Lyon's proximity to Geneva could bring cost savings but have expressed concern that a deal would result in the Swiss airport keeping the high quality business routes while its French rival is left with the bulk of the low-margin traffic.

EARNINGS MULTIPLES

Sector bankers said that Nice and Lyon airports could be worth between 15 and 20 times annual core earnings (EBITDA) of about EUR€100 million and EUR€60 million respectively.

The price paid for a minority stake in Toulouse Blagnac airport last year equated to an earnings multiple of between 17 and 18, industry sources said.

A further guide on price will come from GIP's sale of London City Airport, which could close by the end of the year at an estimated 28 times earnings for a potential GBP£2 billion (USD$3.05 billion) deal.

The lower multiple expected for the French airports is partly because of a likely cap on the amount of debt bidders can put on the asset to meet the price, as implemented in the Toulouse sale, bankers said. Lyon also requires more capital expenditure.

French infrastructure builder Vinci, which lost out to a Chinese-led consortium in the Toulouse auction, is planning a joint bid with state holding company Caisse des Depots et Consignations and insurer Predica for both Nice and Lyon, two sources said. All three companies declined to comment.

Aeroports de Paris, another to have been pipped in the Toulouse sale, has also said it could now turn its attention to Nice.

Bankers said that Chinese buyers could also come in to the reckoning for Lyon as it is the smaller of the two.

The remaining shares in each airport are 25 percent owned by their respective local chambers of commerce, with 15 percent split between local government authorities.