French builder Eiffage in talks to buy Toulouse-Blagnac airport, creating a bookend for Chinese owner’s tumultuous investment

16-May-2019 Intellasia | South China Morning Post | 6:00 AM Print This Post

Eiffage SA, the third-largest civil engineering builder in France and a contractor in the Channel Tunnel, said it has started exclusive talks to buy 49.99 per cent of the Toulouse-Blagnac airport, taking the stake off the hands of its Chinese owner after a tumultuous attempt to privatise the country’s fifth-largest airfield.

The stake was put up for sale by Casil Europe, a unit of China Airport Synergy Investment Limited (Casil), which is in turn a venture between Shandong Hi-Speed Group and Hong Kong entrepreneur Mike Poon Ho-man’s Friedman Pacific Asset Management.

Casil paid euro 308 million (US$345 million/) in 2014 for the biggest single stake for the hometown airfield used by Airbus.

The exclusive talks could be a bookend to a tumultuous five years of ownership by Casil, which had been unable to “access” the airport’s remaining shareholders to jointly develop and expand Toulous-Blagnac, French media Le Figaro said, citing the French economy ministry in saying that the stake owners were “disengaging” with their Chinese shareholder.

“Aviation-related infrastructure is good investment for its stable returns in the long term. But the time horizon for infrastructure investment is longer than other assets, longer than 25 years on average,” said David Yu, professor of finance at New York University in Shanghai. “There is a lot of uncertainties in acquisitions in the EU, especially with simmering issues including” Britain’s exit from the region.”

The investment itself hailed earlier as a successful example of the privatisation of public assets by Francois Hollande’s government has been hobbled by legal wrangling.

The French state failed to follow the necessary procedures as Casil’s bid was initially made alongside Canada’s SNC Lavalin, though the final deal didn’t include the Canadian group, the Administrative Court of Appeal of Paris said on April 16. The French government, now headed by Emmanuel Macron, has filed an appeal against the Paris ruling, with the verdict pending.

“This creates a lot of uncertainty around the asset and the deal,” Yu said. “Given the entire validity of the ownership is in question, it will affect deal pricing due the issue of closing risk. There can be potential extreme outcomes from the current lawsuits.”

Casil Europe said it was “very surprised by the April decision” by the Paris court, in an emailed statement to South China Morning Post. “We will do everything we can to support the state’s challenge against the court’s ruling.”

Toulouse-Blagnac is the fifth-largest airfield in France after Charles de Gaulle in Paris. It handled 9.6 million passengers last year, 28 per cent more than in 2014, connecting 74 flight routes mostly in Europe and northern Africa.

Located less than 7 kilometres (4.3 miles) from Airbus’ base in Toulouse, the airfield has been the testing site for most of the manufacturer’s new aircraft. When the Airbus A380 double-decker aircraft took off on its maiden flight in April 2005, it did so at Toulouse-Blagnac.

ATR, the Franco-Italian manufacturer of propeller-driven civilian aircraft, is headquartered on the airport’s grounds.

Revenue at Toulouse-Blagnac rose by almost 22 per cent to euro 147 million last year, from euro 120.6 million when Casil bought it in 2014. Earnings before interest, taxes and depreciation (Ebitda) rose to euro 51.9 million from euro 41.4 million in 2014.

Before the privatisation of Toulouse-Blagnac, the French government owned 60 per cent of the airfield. After selling the largest stake to Casil, the French state retained control through local authorities such as the Toulouse Chamber of Commerce and Industry, with a 25 per cent stake.

“This potential transaction would mark the start of a new chapter” in the history of Toulouse-Blagnac, Casil Europe said. “Casil Europe’s resolute commitment over the period, together with [the airport's] management, resulted in an increase in traffic of nearly 30 per cent, 42 more destinations for passengers and a much-improved airport, making [Toulouse-Blagnac] the third largest regional airport in France.”

Casil, established in 2014, was an early adopter of the Chinese government’s Belt and Road, aiming to exploit China’s outbound tourism to these countries. Besides Toulouse-Blagnac, Casil also owns and operates the airport in the Albanian capital of Tirana, in a venture with China Everbright.

Poon, a Chartered Financial Analyst who attended the University of Hong Kong and Tsinghua University, is also founder and chief executive of China Aircraft Leasing Group (CALC), listed on the Hong Kong exchange since 2014. Casil and China Aircraft Leasing are unrelated, except through Poon as the common shareholder.

Casil’s winning bid in 2014 was 17 per cent higher than its nearest rival. The company has invested euro 84.1 million cumulatively in the airport as at the end of last year, almost a third higher than its euro 63.9 million when it won its bid, Poon said in an interview with the Post in March.

Still, the Chinese company is “positive on the investment prospects in France and Europe,” given the strong fundamentals and economic stability over the years, in addition to the low-interest monetary environment, Poon said, declining to comment on reports of “disengagement” with his fellow shareholders.

“We saw steady increase in the valuation of airport infrastructures in the region over the last couple of years,” he said. “Therefore, we favour infrastructure, especially aviation-related infrastructure.”


Category: China

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