Largest Heathrow shareholder sells stake to Saudi and French investors

Saudi Arabia's Public Investment Fund and Ardian of France to pay £2.37 billion for Spanish multinational Ferrovial's 25 per cent stake in the London airport

Spanish multinational Ferrovial is selling its 25 per cent stake in Heathrow to Saudi Arabia and Ardian. EPA
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The largest shareholder in Heathrow is selling its 25 per cent stake in the London airport to investors from Saudi Arabia and France.

Saudi Arabia’s Public Investment Fund (PIF) will buy 10 per cent of Heathrow from Ferrovial of Spain, while Paris-based Ardian will acquire a 15 per cent slice in a deal worth £2.37 billion ($3 billion).

Ferrovial had indicated earlier this month that it was considering selling its shareholdings in FGP Topco, the company that owns Heathrow.

The Spanish company also owns 50 per cent stakes in Aberdeen, Glasgow and Southampton airports in the UK, 60 per cent of Dalaman Airport in Turkey and 49 per cent of JFK’s New Terminal One.

“Over the last 17 years, we have been contributing to Heathrow’s transformation, together with our fellow shareholders, achieving some excellent milestones throughout our long-term role as investor," Luke Bugeja, chief executive of Ferrovial Airports said.

"These include overseeing an investment of £12 billion, expanding its capacity with the construction of Terminal 2, and improving its operational performance.

"We are very pleased to have made Heathrow one of the world’s most connected airports and the busiest airport in Europe.”

Analysts feel Ferrovial may be taking the opportunity to reduce its own debt at a time when interest rates are high.

"Ferrovial still has a lot of debt so a chance to pay down some of that debt may be welcome at a time when interest rates stand at multi-year highs and central banks are, for now at least, threatening to keep them there for some time," Russ Mould, investment director at AJ Bell, told The National.

"Ferrovial owned a 25 per cent stake in Heathrow before the deal, whereas it fully owns a lot of its other assets, notably toll roads in the USA. Note also that the UK, including stakes in other airports, comes to just 6 per cent of group asset value and the US and Canada seem to be higher strategic priorities," he added.

Internationally-owned airport

Saudi Arabia's PIF has investments in several British companies, including Newcastle United Football Club and the car manufacturers Aston Martin and McLaren.

"This is just a pure investment play by the Saudi PIF into one of the world's most attractive airport assets, where demand is almost guaranteed in future years." John Gant at the aviation data and analytics company OAG told The National.

The PIF joins another Gulf sovereign wealth fund, the Qatar Investment Authority, as a part owner of Heathrow's parent company FGP Topco.

The Qatar Investment Authority holds a 20 per cent slice of what is one of the world's busiest airports.

Smaller investors include Caisse de depot et placement du Quebec, Singapore’s GIC sovereign wealth fund and the China Investment Corporation.

The completion of the deal is subject to regulatory approval.

Traffic numbers take off

Traffic numbers at Heathrow have bounced back since the pandemic and the airport significantly narrowed its losses in the first nine months of this year to £19 million from £442 million in the same period in 2022, but is still saddled with debts of more than £14 billion.

Last month, seven million passengers travelled through Heathrow, up 19 per cent on the same month last year.

The London airport's passenger numbers have been improving over the course of the year – 59.4 million passengers passed through Heathrow's terminals between the start of January and the end of September, compared with 44.2 million in the same period in 2022.

Last month a ruling on passenger landing fees by the UK's competition watchdog drew dissatisfaction from Heathrow and its airline clients. While the airlines wanted the charges lowered, Heathrow argued that they should be higher.

Nonetheless, demand for air travel is expected to increase in the post-pandemic era and Heathrow was recently ranked as the best-connected airport in the world by OAG.

"It’s all about long-term demand and supply within the total London market," Mr Gant told The National.

"For nearly every international airline in the world, Heathrow is the place to be with a better mix of traffic and potential connectivity."

Nonetheless, some analysts feel Heathrow is not without its problems and the airport's new stakeholders will have to weather them.

"Given high inflation and painful interest rates deployed to bring it down, financing costs of its big debt pile have increased significantly," Susannah Streeter, head of money and markets at Hargreaves Lansdown told The National.

"It’s also been hit by lower revenues at retail outlets at its terminals, partly because of the so-called ‘tourist tax’, meaning visitors can’t claim back VAT.

"With inflation likely to remain stubborn and high interest rates likely to settle in for a sustained period, it seems PIF and Ardian should be prepared to ride out some more turbulence ahead.’’

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Updated: December 13, 2023, 10:17 AM