October 13, 2010 / 5:02 PM / 10 years ago

London City Airport investor seeks exit-source

AMSTERDAM/LONDON (Reuters) - Infrastructure fund manager Highstar Capital is looking to divest its 25 percent stake in London City Airport, two people familiar with the matter said, a sale that could fetch up to 200 million pounds ($317 million).

New York-based Highstar, which bought its stake in London’s sole centrally located airport from Global Infrastructure Partners (GIP) in 2008, is now looking for an exit and has approached infrastructure and pension funds, the sources said.

GIP, which owns 75 percent of the airport, has taken important steps to increase capacity and improve profits, but Highstar may be focussed on the growth prospects of the airport moving forward, the sources added.

“GIP has taken the airport from an annual core profit of 20 million pounds to 50 million pounds and delivered it substantially, but it is set to perform slightly below the bankers’ base case this year for the first time,” one of the sources said.

The airport had an operating profit of 19.4 million pounds in 2009 as it saw its number of passengers — most of them business travellers commuting to and from London’s buzzing financial district — drop 14 percent to 2.8 million.

Based on earnings before interest, tax, depreciation, and amortisation of 15 times, seen by market sources as a benchmark for the airport’s enterprise value, Highstar could fetch between 150 and 200 million pounds for its stake.

Highstar’s efforts to sell the stake have been complicated by GIP’s right of pre-emption based on the terms of their agreement, the two sources close to the matter added.

A London City Airport spokeswoman directed press enquiries to Highstar, which did not immediately respond to a request for comment. A GIP spokesman declined to comment.

AIG EXIT

The stake sale would draw a definitive line under City’s affiliation with American International Group (AIG.N), the stricken U.S. insurer.

AIG bought London City Airport through its financial products subsidiary in 2006 together with GIP. The deal’s value was 742 million pounds, according to Thomson Reuters data.

But in October 2008, as the financial crisis took hold, AIG sold its 50 percent stake to GIP for an undisclosed sum. AIG has cosponsored infrastructure funds together with Highstar, though the latter is an independent asset manager.

Much of London City Airport’s future growth hinges on its plans for expansion. In July 2009, local authorities approved a planning application that would raise the number of permitted flights at the airport from 80,000 to 120,000 per year.

But the approval decision is subject to a judicial review which is scheduled to take place next month, the airport spokeswoman said on Wednesday.

Were Highstar to exit London City Airport, GIP has form in bringing new infrastructure investors into its airports. It has lured South Korea’s National Pension Service, Abu Dhabi Investment Authority (ADIA) and U.S. pension fund Calpers with minority stakes into its majority-owned Gatwick Airport.

More British airports could be up for sale after an appeals court on Wednesday reinstated an order for BAA, owned by Spain’s Ferrovial (FER.MC), to sell London’s Stansted airport and either Edinburgh or Glasgow airports in Scotland within two years.

(Editing by Mike Nesbit)

$1=.6317 pounds

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