AMP set for $165m airport purchase

The Town of Port Hedland is poised to complete Western Australia’s biggest privatisation in 15 years, with a consortium led by AMP Capital set to pay $165 million for a 50-year lease over the town’s airport.

The AMP consortium, which includes specialist investment manager Infrastructure Capital Group, was the only group to submit a compliant bid during the privatisation process.

The deal is subject to approval at a special meeting of the town council, to be held on Tuesday evening.

The Port Hedland council has put a value of $205 million on the transaction, comprising an up-front payment of $165 million and a commitment by the consortium to spend $40 million on airport upgrades over the next five years.

Agenda papers circulated by the council on Friday reveal it sought binding bids from two short-listed groups.

While both groups submitted bids, only the AMP consortium submitted its bid during the allowable time, up to August 11.

The second bid, from an unnamed group, was received after the tender close and therefore could not be considered.

Melbourne-based The Airport Group, which advised the council, will receive a $4.5 million fee for its work, while the council will incur transaction costs of an estimated $1.2 million.

The council has spent two years evaluating privatisation options, which are designed to bring private sector expertise to management of the airport while removing the obligation to fund major capital works.

The council believes its support for privatisation is backed by the experience of regional airports on the east coast that have benefited from private ownership.

It has highlighted the lease deal is above valuations provided by The Airport Group ($137-$157 million), the WA Treasury Corporation ($115 million) and registered valuer Asset Val ($106 million).

The agenda papers state that the deal would also remove the obligation to transfer revenue from the sale of land at the recently developed Kingsford Smith business park to the airport ‘reserve’.

The council has estimated initial sales of $40 million at the 113-hectare business park, which is adjacent to the airport.

The proposed deal follows rapid growth in airport usage over the past decade, with passenger numbers up 75 per cent over the past 10 years.

The airport has about 70 flights a week, and had 512,000 passengers in the year to June 2014.

Its revenue increased to $19.2 million in 2014-15.

The council’s development plans include upgrading the terminal so it can handle 700,000 passengers per year.

The land covered by the long-term lease includes the Mia Mia and Port Haven transient workers camps, and an area leased by BHP Billiton.

The council is planning to invest the net lease proceeds ($160 million) into a stabilisation fund.

Mayor Kelly Howlett said that assuming this money earned 5 per cent a year for 50 years, there would be $388 million available for the community.

“This will give us a once-in-a-generation opportunity to fund a whole range benefits for our community,” Mayor Howlett said in a statement.

It is proposed the money will be disbursed in three ways.

There would be annual payments to the town council starting at $8.2 million, to make up for the loss of recurring income from the airport ($3.4 million), the BHP lease ($3.8 million) and the transient workers’ camps ($1.4 million).

There would be five-yearly disbursements to a development fund, starting at $10 million.

There would also be annual disbursements for community grants and projects, starting at $150,000 in year one.

AMP Capital is the investment management arm of AMP, and has about $160 billion of funds under management.

Its assets include a shareholding in Australia Pacific Airports Corporation, which owns and operates Melbourne and Launceston airports.

Infrastructure Capital Group is a specialist Australian investment group, owned and run by its directors who include AFL Commission chairman and infrastructure investment pioneer Mike Fitzpatrick.

Its WA assets include the Kwinana, Neerabup and Esperance power stations and the Mumbida wind farm near Geraldton.

Other assets include pipelines, ports and Sydney’s former Olympics venue, Stadium Australia.

The Port Hedland deal comes as the state government is progressing its own privatisation program.

The first big sale by the Barnett government is likely to be Market City, the Canning Vale fruit and vegetable markets currently run by the Perth Market Authority.

Other assets up for sale include Fremantle Ports and the Utah Point bulk handling facility at Port Hedland.

The last big privatisation in WA was the $971 million sale of AlintaGas in 2000.

The Port Hedland deal follows the Commonwealth government's privatisation of Perth Airport in 1997 and Jandakot Airport in 1998.

Perth Airport was sold for $643 million to a group of institutional investors. It currently has seven shareholders.

Specialist infrastructure investment group Hastings, which was established by Mike Fitzpatrick and is currently owned by Westpac, runs three of those funds, which collectively own 59.9 per cent of the airport.

The Commonweralth government's Future Fund is the second largest shareholder, with a 29.7 per cent stake.

Jandakot Airport was sold for $7 million to Jandakot Airport Holdings, which was majority owned by Perth-based civil contractors Hans Versteeg and Kevin Pollock.

After Mr Pollock's earthmoving empire collapsed, Jandakot Airport Holdings was bought by land develop Ascot Capital for $47 million in 2005.