Auckland City Council and Manukau City Council are spending millions of dollars buying shares in Auckland International Airport Ltd (AIA) to help the airport pay down debt from investing in north Queensland airports.
AIA today unveiled a $126.4 million fully underwritten capital raising, the structure of which is a first in New Zealand, but is used in Australia.
Existing shareholders can buy one new share for every 16 held at $1.65 each, a 13.3 percent discount from the closing price yesterday.
The institutional part of the offer is accelerated and will occur over the next few days. There is no trading of rights and shares not taken up by shareholders are sold in a bookbuild, or tender process.
Any premium in the price obtained over $1.65 in that process goes to the shareholders who did not take up rights.
Auckland City Council has a 12.71 percent stake in the airport and Manukau City Council has 10.01 percent.
Auckland City Council said it will finance the purchase of its entitlement through debt of about $16m. Manukau said it will cost $12.66m to maintain its stake.
NZ Superfund, which has a 9.75 percent stake, is not saying publicly if it will take up its entitlement.
"The decision ensures the council's shareholding remains over 10 percent, and therefore unable to be bought out in the event of any takeover attempt. Failure to take up the offer would, in effect, be selling down of the council's stake," Manukau Mayor Len Brown said.
Auckland City Council's finance and strategy committee chairman Doug Armstrong said the council has moved quickly to protect its pledge to ratepayers to maintain a minimum level of shareholding in the airport, thereby preserving its strategic position.
"From November 1, Auckland City and Manukau City Council's shareholding will be transferred to the new Auckland Council and it will be their role to determine future policy in respect to the Auckland Airport shareholding," he said.
The councils' investment decision comes at a time of debate about what is the core business of local authorities. Auckland City Council said it would seek Auckland Transition Agency approval for the purchase.
"Public ownership of key assets is crucial to building a world-class city. With the new super city, Manukau's shareholding is an investment on behalf of all of Auckland," Mr Brown said.
On January 13, the airport bought a 24.55 percent stake in Cairns and Mackay airports in Queensland. The company had used its existing debt facilities to pay for the purchase, it said.
The offer announced today is underwritten by Credit Suisse (Australia) Ltd and First NZ Capital Securities Ltd. Martin Stearne, director of equity capital markets at First NZ Capital, said there were two unique features of the offer.
"A substantial piece of the deal is completed inside a short time frame.
"Secondly, the retail shareholders who elect not to take up their rights receive value for them without having to do anything."
For the small shareholder the value of rights set in rights trading can be consumed by brokerage fees and this did not happen in this structure.
The airport also released unaudited accounts today for the six months to December 31. These showed profit after tax of $54m, excluding an investment property fair value adjustment, which compared with $51.6m in the same period last year.
Earnings before tax, depreciation, and amortisation of $138.8m compared with $138.7m last year as decreased retail revenues were offset by lower operating costs.
The new shares will be entitled to any interim dividend paid by the airport for the interim period.
