Ferrovial poised for fresh investments after sales

A passenger jet taxis along the runway at Stansted Airport in Essex, southern England March 19, 2009.

LONDON/MADRID (Reuters) - Spanish industrial group Ferrovial (FER.MC) is gearing up to make fresh infrastructure investments after it sells a stake in British airport operator BAA and completes the enforced sale of two of its UK airports.

Ferrovial could use the funds, estimated by analysts to be as much as 2 billion pounds, to bid for Spanish operator AENA's Madrid Barajas or Barcelona's El Prat airports.

Nuria Alvarez, analyst at Spanish brokerage Renta4, said the purchase of Barajas or El Prat would make "strategic sense" and provide Ferrovial with access to "stable revenue flows", despite the uncertainty surrounding Spain's economy.

Ferrovial, touting interest from infrastructure, pension and sovereign wealth funds, has said the sale of a 10 percent stake in BAA -- the owner of Europe's busiest airport, London's Heathrow -- is on track for this year, though it is likely to be choosy about whom it sells to.

"There is interest in the market from pension funds, sovereign wealth funds, and infrastructure funds but the issue is price," said a banker with knowledge of the situation.

"Ferrovial seems to want at least 300 million pounds. They know such airport assets are hard to find."

Chinese airport operator HNA Group, parent of Hainan Airlines (600221.SS) is one of a handful of parties considering a bid, sources with knowledge of the matter have told Reuters.

While Ferrovial will want a friendly partner to ensure management and strategy continuity, the buyer of a minority stake may want to change BAA's corporate by-laws, a painstaking procedure requiring lawyers and other shareholders' approval.

The sale means Ferrovial will cut its 55.9 percent stake below 50 percent, an attractive move because the company will be able to take BAA's 10 billion pounds debt off its balance sheet, but worrying because it will lose majority control.

Canadian pension fund CDPQ owns 26.5 percent of BAA, while GIC -- the investment arm of the Singapore government -- holds the remaining 17.6 percent.

"We think the 10 percent stake could sell for around 250 million pounds," said RBC Capital Markets analyst Olivia Peters.

"Heathrow is a rare infrastructure asset where the traffic and retail outlook are positive and where slot demand exceeds supply, thus reducing external demand risk."

Investors will, however, be concerned that BAA has not paid a dividend to Ferrovial since it led a consortium to buy the group in a heavily leveraged 10.3 billion pound deal in 2006.

Bankers say BAA could pay a dividend in the next two years after it last year paid down a financing facility to below 1.3 billion pounds, unblocking dividend payments by its operating company and subsidiaries.

After the stake sale, the next move for Ferrovial -- whose shares trade at 45 times forecast 2011 earnings compared to the sector's 15 times -- will likely be to sell two BAA airports.

UK AIRPORT SALES

BAA is being forced by Britain's competition watchdog to sell London's Stansted and either Glasgow or Edinburgh airports in Scotland to reduce its dominance in the UK market.

Last week BAA boss Colin Matthews told Reuters that Stansted should fetch at least 1.2 billion pounds -- roughly the same as its regulated asset base RAB.L.

Analysts, though, point to Stansted's weak pricing power -- due to its large exposure to low cost airlines -- and limited revenue visibility, as reasons it could fetch less.

"Stansted could sell at a discount to RAB, perhaps 20 percent, implying an enterprise value of 1.064 billion pounds," said RBC's Peters.

"We value the airports on 12 times 2011 forecast EV/EBITDA (enterprise value to core earnings) which implies an EV of 1.2 billion pounds -- 474 million pounds for Glasgow and 617 million pounds for Edinburgh."

Consortia made up of pension funds and sovereign wealth funds and major infrastructure investors are the most likely bidders for the BAA airports.

"A consortium including Vancouver Airport Services (YVRAS) and Citi Infrastructure Investors are interested, as is Manchester Airport Group," a source close to the situation said.

"Macquarie, Hochtief (HOTG.DE) and the Turkish airports authority TAV are also watching the situation closely."

Buyers are attracted by the expansion potential at Stansted, which is considered the least desirable of London's five airports because of its location in Essex, 35 miles north east of the capital.

"Airport assets don't often come up for sale so investors may be willing to take a risk and pay a decent price," said Peter Morris, chief economist at aviation consultancy Ascend.

"The buyer could expand capacity at Stansted ... that flexibility and what extra can be extracted from car parking, retail and airline fees is its long-term life line."

Ferrovial is expected to use the proceeds to bid for Madrid Barajas or Barcelona's El Prat airports.

A source close to Ferrovial said the company was "studying the sale of AENA's assets very seriously".

Spain announced plans to partially privatise AENA and its airports last year as it seeks to reduce the national debt.

However, economists caution that growth in Spain -- the euro zone's fourth largest economy -- could be limited if it is forced to follow in the footsteps of Ireland and Greece in requesting an EU- and IMF-backed bailout.

(Additional reporting by Greg Roumeliotis, Editing by Mark Potter)