This article first appeared in The Edge Malaysia Weekly on February 26, 2024 - March 3, 2024

KHAZANAH Nasional Bhd, the Employees Provident Fund (EPF) and New York-headquartered private equity (PE) firm Global Infrastructure Partners (GIP) are understood to be forming a consortium to own and run airport operator Malaysia Airports Holdings Bhd, say sources familiar with the arrangement.

The Edge is given to understand that if all goes to plan, an agreement could be inked in as early as two to three weeks and may involve some form of equity participation on the part of GIP, although details are lacking at the moment.

Khazanah is currently the largest shareholder of MAHB with a 32.67% stake, while EPF has 7.06% equity interest in the airport operator.

How the consortium will run MAHB is not clear. MAHB manages a total of 39 airports across Malaysia and wholly owns and manages Istanbul Sabiha Gokcen International Airport in Turkey. It also has an 11% stake in Rajiv Gandhi International Airport in Hyderabad, Telangana, India.

A tight-lipped source would only venture, “There will be a corporate exercise [involving the three consortium partners and MAHB].”

On whether Khazanah is looking to pare down its shareholding in MAHB, in response to questions from The Edge, it says, “As part of our mandate as Malaysia’s sovereign wealth fund, Khazanah Nasional is constantly reviewing its investment portfolio. However, at the present moment, there are no intentions to reduce our interest in MAHB, which we believe is a key strategic and national asset.”

GIP did not respond to questions sent by The Edge. However, the PE firm is in the midst of being taken over by BlackRock in a US$12.5 billion (RM59.8 billion) cash and share deal, announced in mid-January. The acquisition is slated for completion in the third quarter of this year.

GIP, which was founded in 2006, has US$60 billion in assets under management in diverse parts of the world, including ports, liquefied natural gas and container terminals, renewable energy assets, water treatment plants, rail transport assets and ammonia-urea plants, among others.

A source familiar with the deal explains the PE firm’s potential participation. “GIP is well known for running airports. MAHB has been having issues with the Kuala Lumpur International Airport, its main asset, problems with the aerotrain, and ageing baggage handling systems and what not. So, it makes sense to court GIP.”

The PE firm has under its belt Sydney Airport in Australia, two airports in London — Gatwick and London City — and Edinburgh Airport in Scotland. Gatwick is one of the largest airports in Europe and serves more than 46 million passengers a year, while Sydney Airport is Australia’s largest airport and primary international gateway serving over 44 million passengers. Edinburgh Airport is Scotland’s busiest airport, serving more than 14 million passengers.

MAHB is in a different league. From January to September 2023, its Malaysian airports saw 60.7 million passengers, while its Turkish operations at Istanbul Sabiha Gokcen International Airport catered to 28.1 million passengers.

On the local front, a huge chunk of MAHB’s passenger traffic came from its largest airports — KLIA (which has two terminals, one of which is a low-cost facility), Kota Kinabalu International Airport, Kuching International Airport, Langkawi International Airport and Penang International Airport.

For the nine months ended Sept 30, 2023, MAHB chalked up a net profit of RM255.47 million on the back of RM3.54 billion in revenue. In the previous corresponding period, the airport operator suffered a net loss of RM171.94 million from RM2.12 billion in revenue.

MAHB’s net cash generated from operating activities during the nine-month period was RM1 billion. It had cash and cash equivalents of RM1.64 billion as at end-September last year. On the other side of the balance sheet, it had long-term debt commitments of RM4.07 billion and current liabilities of RM640.6 million. Its finance costs for the nine-month period stood at RM500.35 million, even though it had almost RM1.4 billion in retained earnings.

While its financials have picked up, MAHB has been in the spotlight because of the breakdown in March last year of its aerotrain that connects the main building to the satellite terminal, leading to much passenger discomfort and inconvenience.

At end-2021, MAHB awarded a RM742.95 million contract to Pestech International Bhd and its partner Alstom Transport Systems (Malaysia) Sdn Bhd for the design, supply, installation, testing and commissioning of an automated people mover and associated works at KLIA, including financing, operation and maintenance. The contract was to run until Feb 11, 2034.

However, MAHB terminated Pestech’s contract in mid-August last year, citing issues of non-performance and delay risks to delivering the project by the deadline. In October, the airport operator sought a re-tender from companies pipped by Pestech in the original bid at end-2021.

Then in a surprising turn of events last month, Pestech was reappointed as contractor of the aerotrain replacement project with Alstom and construction giant IJM Corp Bhd, which is acquiring a controlling block of 44.83% equity interest in Pestech via a share issuance.

The contract awarded to Pestech at end-2021 required the new aerotrains to commence operations by July 2024, but this has been extended to March 2025. Until then, passengers will be ferried to their respective aircraft in buses.

MAHB’s share price hit RM8.08 on Feb 16, its highest since end-2019. The stock had gained about 13.5% or 96 sen since early December last year to close at RM8.03 last Friday, translating into a market capitalisation of RM13.4 billion. 

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