Spain Shelves Airport Selloff

October 13, 2011

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Spain shelved the multi-billion euro selloff of its two biggest airports after bidders struggled to raise financing, depriving the state of more revenue to reduce borrowings as it fights its corner in the euro zone debt crisis.

The public works ministry said on Thursday it will postpone the sale for three months, until after the November parliamentary election which polls predict will give a landslide victory to the main opposition People's Party (PP).

The PP opposes the airports sale in the current poor economic climate and has accused the government of rushing through the disposal of valuable assets at a low point in financial markets.

The delay to the airports sale comes after the government shelved plans for the partial sale of the state lottery last month. Bankers said bidders were reluctant to buy state assets ahead of the election.

The government was also asking too high a price for Madrid's Barajas and Barcelona's El Prat airports, sources close to the negotiations said.

"The timing was never going to work for a privatisation due to be completed just around general elections time. But there was also a huge discrepancy over the price the government was asking for the two airports, particularly Barajas," a Madrid-based senior banker said.

"For example, the two funds bidding with Spanish infrastructure group Ferrovial were looking for a return on investment of 12-15 percent, whereas Barajas was offering no more than 10 percent," the banker said.

The two airports have been valued together at EUR€5 billion (USD$7.0 billion) and the seven groups of bidders who expressed initial interest in the privatisation had all passed on to the second round of the process.

"The banks could have had the last word in this as they are the ones who are going to finance the deal," a US asset manager said.

Most of the bidders will be looking to fund the acquisition with 20-30 percent equity and the rest in debt, he said.

"Given the pressure Spanish banks are feeling from higher funding costs and their escalating loans to deposit ratios they are more disposed to cut corporate funding at present," the asset manager said.

German airport operator Fraport and partner Spanish infrastructure firm Acciona, as well as Spain's Ferrovial in consortium with CPP Investment, IFM Luxembourg and Infinity Investments have expressed interest in the airports sale.

Another sole bidder is India's GMR Infrastructure who said on Wednesday that it was in negotiations with the Spanish government, but was sceptical about the operation.

"We are in discussions with the government but we have not pushed very aggressively as we are concerned about the economic viability of the deal... I expect that many other bidders feel the same," said A Nithyanand, GMR Infrastructure Airports Head of Business Development and Commercial.