17-6-2024 (KUALA LUMPUR) Malaysia’s proposal to privatise its national airport operator, Malaysia Airports Holdings Bhd (MAHB), continues to face criticism and scrutiny, yet analysts suggest the ambitious scheme is unlikely to be derailed.
“The process has already commenced, and abandoning it at this juncture is no longer a viable option, as a formal offer has been tabled for the proposed privatisation,” remarked a Finance Ministry official closely involved in the transaction.
The official further emphasised that the international reputations of two prominent Malaysian state-controlled entities spearheading the deal – the sovereign wealth fund Khazanah Nasional and the Employees Provident Fund – are at stake.
The involvement of the world’s largest asset manager, New York-based BlackRock Inc, in the multi-billion-dollar privatisation of the airport operator has transformed the proposed transaction into a political hot potato for Prime Minister Anwar Ibrahim, owing to the US company’s ties with Israel.
In mid-May, Khazanah and EPF announced the formation of a consortium with BlackRock-linked Global Infrastructure Partners (GIP) and the Abu Dhabi Investment Authority to take the publicly listed MAHB private, offering RM11 (US$2.30) per share.
BlackRock holds significant investments in Israel and was a major investor in companies that supply arms to the Israeli defence forces. The firm announced in January its intention to acquire GIP for US$12.5 billion, a deal expected to be finalised in the third quarter of this year.
Under the multi-stage corporate transaction to privatise MAHB, the four entities will establish a special purpose vehicle, Gateway Development Alliance Sdn Bhd. Khazanah and EPF will hold a 70 per cent stake in the consortium, with the foreign parties owning the remaining interest. With a share base of 1.66 billion units, the deal values MAHB at RM18.26 billion (US$3.9 billion). Considering that the public currently holds roughly 40 per cent of MAHB shares, according to advisory firm CGS International, the new consortium would need to invest approximately RM7.3 billion (US$1.55 billion) to take the company private.
The deal, slated for the fourth quarter of the year, must secure regulatory approval in Malaysia and other jurisdictions, such as Türkiye.
However, it is not merely politics fuelling public consternation over the proposed privatisation of MAHB, which stands as the Anwar administration’s most audacious corporate exercise since assuming power in November 2022.
Aviation experts and bankers are also questioning the economic viability of the privatisation plan.
“I still cannot comprehend the rationale behind the privatisation, as it does not guarantee results. There is a general industry perception that apart from being transaction-driven, there is no clear plan in place,” remarked Mr Shukor Yusof, a senior aviation analyst and founder of Singapore-based Endau Analytics.
He added that Malaysia should consider emulating the management models of top airports, such as Singapore’s Changi and South Korea’s Incheon International, as both these airports are successful not only in terms of functionality but also as attractions.
The wider investing community appears to concur with this scepticism.
Typically, the share value of a company targeted for privatisation and takeover tends to rise towards the proposed transaction price.
However, this has not been the case for MAHB. On Friday, MAHB shares were trading at RM9.87 per share, significantly lower than the RM11 offer price in the privatisation deal.
“Markets do not lie, and the share price suggests substantial concerns over whether the deal will materialise,” remarked a chief executive of a foreign bank based in Malaysia.
The government’s defence of the proposed MAHB privatisation has been less than robust.
Mr Anwar has accused the opposition of making baseless allegations, stating, “There is nothing positive from them, only inciting hatred and envy,” as quoted by Malaysia’s domestic media.
Debate over the MAHB deal is expected to intensify during the next Parliament sitting, commencing on June 24.
Khazanah, often compared to its Singapore counterpart Temasek Holdings, defended the proposed privatisation plan, noting that the BlackRock-tied GIP was selected after a rigorous review of potential technical partners, including global airport operators.
“We were seeking a partner with a strong track record of value creation and one that goes beyond what current airport managers are doing and can achieve…GIP fits the bill, and like most private equity funds, they will eventually exit after creating value, just as they have been doing with their other airports,” said a Khazanah spokesperson.
Ranked as one of the world’s leading infrastructure managers, GIP has a 17-year track record and currently manages US$112 billion in assets. Apart from managing ports and airports, GIP also has extensive investments in renewable energy and oil and gas projects globally.
However, critics of the privatisation plan noted that the airports under GIP’s management do not rank highly in international rankings such as Skytrax.
The London Gatwick Airport, in which the fund holds a 49.99 per cent interest, is ranked 48th in Skytrax’s 2024 ranking, while the Sydney Airport, of which GIP owns 37 per cent, was ranked 55th. In contrast, Singapore’s Changi was ranked second, after the Doha Airport, and South Korea’s Incheon ranked third.
Unlike the standalone airports GIP currently manages, MAHB has 39 airports in its stable, all of them in Malaysia except for the Sabiha Gokcen Airport in Istanbul.
The airports in Malaysia are in need of upgrades.
The Kuala Lumpur International Airport (KLIA), widely considered MAHB’s prized asset, was ranked 71st in the Skytrax 2024 airport rankings. It suffered an embarrassing technical outage that left passengers stranded in 2019, and in 2023, the airport management was forced to suspend its aged aerotrain network, which is now being replaced.
Proponents of the privatisation plan noted that GIP would provide much-needed financial muscle and technical expertise to help MAHB regain its competitive edge against other international rivals.
The Anwar administration’s decision in March to replace the previous 25-year concession with a fresh 45-year term, expiring in 2069, will also allow for better financial planning and airport expansion programmes, according to government officials.
However, there are concerns that BlackRock’s participation could create complications, particularly regarding the future prospects of the Sabiha Gokcen Airport in Istanbul.
Türkiye suspended all trade with Israel last month over what President Recep Tayyip Erdogan described as a “worsening humanitarian tragedy” caused by the Israeli offensive in Gaza.
Some bankers have speculated that unless ties between the two countries normalise, MAHB could find itself in an awkward position when the concession for the Sabiha Gokcen Airport expires in 2023.
CGS International noted in a report to clients in late February that MAHB could enhance its chances for an extension by bringing in a new Turkish investor as a partner in Sabiha Gokcen, where it currently holds a 100 per cent interest.
Khazanah declined to comment on the prospects for the Istanbul airport.
