This article first appeared in The Edge Malaysia Weekly on April 1, 2024 - April 7, 2024

MALAYSIA Airports Holdings Bhd (MAHB) is looking at monetising its Turkish airport operations by divesting part of its 100% equity interest in Istanbul Sabiha Gökçen Uluslararasi Havalimani Yatirim Yapim ve sletme AS (ISG), according to people familiar with the matter. ISG operates Istanbul Sabiha Gökçen International Airport (ISGA) — the second-largest airport in Türkiye.

Sources say IC brahim Çeçen Yatirim Holding AS (IC Holding), a Turkish company that also has an airport operations business, is keen to take up a significant stake in ISG.

Negotiations are said to be in an advanced stage and, if a deal is struck, the two will jointly run the airport.

When contacted, MAHB tells The Edge: “IC Holding is a strategic partner to MAHB, as announced on Dec 26, 2023, with the appointment of Serhat Soukpnar as the new CEO of ISG. IC Holding has significant experience on a global scale in airport construction and management. It has successfully undertaken key projects in Türkiye such as Izmir Adnan Menderes Airport’s international terminal, Antalya Airport’s second runway and the international terminal of Ordu-Giresun Airport.”

MAHB also points out that IC Holding has been actively involved in airport projects internationally, including Varna Airport and Burgas Airport in Bulgaria, Pulkovo Airport in Russia and Riyadh Airport in Saudi Arabia, and was recently awarded the construction of Long Thanh Airport in Vietnam.

ISG had announced last December that MAHB had entered into a strategic collaboration with IC Holding and, as part of the collaboration, Serhat, who previously held the position of president of transport and infrastructure at IC Holding, was named the new CEO of ISG.

In the announcement, Murad Bayar, CEO of IC Holding, said the strategic collaboration with MAHB offered important opportunities for new investments in Asia and had the potential to increase IC Holding’s presence and effectiveness in this region.

According to MAHB, the collaborative partnership leverages IC Holding’s expertise to streamline operations and ensure heightened airport efficiency levels, in preparation of the expected surge of passengers in the summer travelling period.

“Several initiatives have been undertaken under the partnership for operational optimisation, through automation and technology, as well as infrastructure upgrading. The management of ISG, including the recent collaborative initiatives with IC Holding towards improving operational efficiency, is led by the CEO and management of ISG, with the close support of MAHB’s management team.

“The members of the board of directors are not actively involved in operational matters of the company, and there is no intention to nominate any directors of MAHB to be the executive director of ISG,” the airport operator tells The Edge.

MAHB manages and operates 39 airports in Malaysia and an international airport in Istanbul. Currently, Khazanah Nasional Bhd holds the largest stake in MAHB, with 32.67%, followed by the Employees Provident Fund (7.01%) and Kumpulan Wang Persaraan (Diperbadankan) (6.933%).

MAHB had previously expressed its intentions to sell a stake in the Istanbul airport. Datuk Badlisham Ghazali, managing director of MAHB from 2014 to 2018, previously said the group was evaluating its strategic partners. He said the Turkish asset was attractive, with a high valuation, and the concession was valid until August 2032.

It was reported in 2017 that TAV Havalimanlari Holding AS, which operates the Ataturk Airport in Istanbul, was eyeing a potential stake in ISG. And in 2018, Bloomberg, quoting sources, reported that Turkish Airlines was bidding for an 80% stake in ISG from MAHB for €750 million. Nothing materialised.

ISG recorded a profit before tax (PBT) of RM145 million in the financial year ended Dec 31, 2019 (FY2019), making it the first year a profit was recorded since the company became a wholly-owned subsidiary of MAHB in 2014. It swung back to a loss the following year, however, owing to the pandemic.

MAHB’s operations in Malaysia and Türkiye are now back in the black, underpinned by strong recovery in international passengers since the pandemic.

MAHB’s 2022 annual report shows that ISG recorded a PBT of RM436.8 million in FY2022, compared with a loss before tax of RM270 million in FY2021. This was driven by higher revenue of RM1.3 billion and a reduction in utilisation fees amounting to €116.7 million (RM546.2 million). In FY2023, ISG recorded a lower PBT of RM113.1 million on revenue of RM1.76 billion owing to the absence of the reduction in utilisation fee.

Air passenger traffic at ISGA has recovered strongly and even surpassed the pre-pandemic 2019 level. The airport served 37.6 million passengers last year, which was up 20.5% year on year. It was 5.9% more than 2019’s 35.5 million passengers.

Analysts expect ISG to record stronger earnings in the coming years, as air travel remains robust, especially for the international segment. At least 19.6 million international passengers passed through ISGA in 2023, up 24.6% y-o-y.

Construction of a second runway at ISGA was completed last December, enabling the airport to handle up to 80 flight movements per hour, doubling its current capacity. The airport can handle 41 million passengers per year, and serves 162 destinations (122 international and 40 local) across 53 countries.

According to a source close to the matter, MAHB’s move to pare down its stake in ISG is positive, saying a partnership with a local Turkish company would help the airport operator run the Istanbul airport more effectively.

“They should have done part-divestment much earlier when the concession period was longer and where the valuation would have been higher. Since 2014, MAHB spent more than €500 million to buy the remaining 80% stake in ISG, but the airport made money only in 2019. Considering that there are just eight years left of the ISG concession period, its returns are at risk. Thus, it is best to go with a partner to increase the returns on investment,” he says.

“Now, the idea is to partner with a local firm and bid for future expansion with a new concession tenure of another 20 years. This is almost like doubling down because, as it is, with the existing concession expiring in 2032, there is no chance of recovering cash outlay.”

MAHB’s website shows that MAHB was part of a 20:40:40 consortium with Indian partner GMR Airports Infrastructure Ltd and Turkey’s Limak Holding that won a €1.93 billion contract to develop the Istanbul airport in May 2008. MAHB, which was the designated airport operator partner, had raised its holding to 60% in 2013 by acquiring GMR’s 40% stake for €225 million. It then bought the remaining 40% from Limak in 2014 for €285 million.

Last October, MAHB announced the disposal of its 11% stake in GMR Hyderabad International Airport Ltd (GHIAL), the operator of the Hyderabad International Airport, to subsidiaries of GMR for US$100 million. According to MAHB, the disposal is intended to monetise the asset, since the group has received only US$6.41 million in dividends from GHIAL since it invested in the airport in 2008.

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