AIA put on creditwatch negative as uncertainty surrounds bid

By NZPA

Friday 14th March 2008

Uncertainty about the success of a partial bid for Auckland International Airport has resulted in the airport company being placed on negative credit watch by Standard & Poor's.

The future ownership of AIA is down to the Overseas Investment Office (OIO) and two cabinet ministers after shareholders resoundingly backed the 40 percent bid by Canada Pension Plan Investment Board (CPP).

Analysts believe the CPP decision to limit its vote in AIA to 24.9% means the OIO should recommend the bid to the ministers. It has until April 11.

But political analysts believe the ministers -- Land Information Minister David Parker and associate finance minister Clayton Cosgrove -- could reject CPP on naked political grounds because foreign ownership is unpopular and the Government trails heavily in opinion polls.

Standard & Poor's credit analyst Parvathy Iyer said the CreditWatch action reflected uncertainty about the outcome of the CPP offer, and the implications of the ownership changes for AIAL.

"If the CPPIB deal is approved, Standard & Poor's will seek to understand the pension fund's strategic direction and capital structure for AIAL, its intent and expectation from the investment, and risk appetite to resolve the CreditWatch."

Even if the deal did not proceed, Standard & Poor's would seek clarification over AIA's medium-term financial risk targets and policies to assess the rating and the outlook.

Despite opposition from the two local bodies, nearly 63% of shareholders accepted the $3.60 per share, and CPP also received a majority shareholder vote in favour of the deal.

Shareholders who accepted the bid will end up with around a third of their shares as acceptances are scaled back.

CPP vice-president -- head of infrastructure -- Graeme Bevans, said the board had a legal opinion from prominent law firm Bell Gully that the bid "has a high probability of success".

The CPP will argue that 27,000 shareholders accepted the offer and they represent the view of middle New Zealand, with a predominance of Aucklanders.

CPP will not say who it has employed for political advice.

Yesterday, CPP lodged an application with the IRD for a binding tax ruling.

As well as tightening the regulations on foreign control, the Government changed the rules regarding the tax deductability of stapled securities, which is part of the CPP amalgamation plan.

Asked if the Government had been fair in changing the rules, Bevan said it had been transparent and CPP had responded.

A spokeswoman for Cosgrove today said the OIO would provide a detailed report to the ministers.

They did not know when that would be received and there was no statutory timeframe for their decision.

However, they would try to make it as soon as reasonably possible.

If approval was not gained by April 11, the offer would lapse and the shares offered for sale would no longer be subject to the bid which meant they would be free to be traded as usual.

John Banks, mayor of Auckland City, which chose not to sell its 12.75% stake into the bid, said he expected the Government to intervene to stop the Canadians.

CPP said it would provide final details on scaling of the acceptances once acceptance levels were finalised by the middle of next week.

Shares in AIA closed down 14c, or 5.5%, at $2.40.

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