This article first appeared in The Edge Malaysia Weekly, on December 21 - 27, 2015.   

MALAYSIA AIRPORTS HOLDING BHD’S (MAHB) acquisition of the remaining 40% stake in Turkey’s second largest airport, Istanbul Sabiha Gokcen (ISG) International Airport, was a good move as it gave the former the opportunity to tap one of the fastest growing airports in the world amid tepid growth at home.

The deal, which gave MAHB full ownership of ISG, from 60% previously, came about after the airport operator made the astute decision in October 2014 to exercise its right of first refusal to block competitor TAV Havalimanlari (TAV) from landing the stake.

TAV owns a majority stake in Turkey’s largest airport, Ataturk International Airport.

Had MAHB not exercised its pre-emptive right, there was a possibility that TAV — which would have landed the 40% stake — would focus on making Ataturk the primary hub in Turkey. That would have made ISG irrelevant until 2018 at the earliest, which is when Istanbul’s third airport opens and Ataturk closes.

MAHB completed the 40% acquisition of ISG and the firm that operates services within the airport, LGM Havalimani, from the Limak Group on Jan 2. It forked out €279.2 million cash (the equivalent of RM1.18 billion at the time) for the stake, a slight reduction from the €285 million it was originally quoted.

It was a fair price to pay, analysts said. “We believe the acquisition price is reasonable, at nine times FY2015 enterprise value over Ebitda (earnings before interest, taxes, depreciation and amortisation), on our estimates, but above the 7.1 times MAHB paid for the acquisition of a 40% stake in ISG earlier (in 2014) at €225 million,” JPMorgan Research noted in an October 2014 report, shortly after the deal was announced.

MAHB fully funded the deal by embarking on a one-for-five rights issue involving 275.31 million new shares at RM4.78 each, to raise RM1.3 billion. It completed the rights exercise in late March and most of the proceeds went towards repayment of the bridging facility that was secured to finance the ISG stake purchase.

The acquisition is expected to strengthen MAHB’s presence as an airport manager and operator in Turkey and Europe. ISG is deemed to be an attractive asset to MAHB given its long-term growth potential and prospects. It served 18.84 million passengers in 2013, representing a compound annual growth rate of  30.6% from 3.79 million passengers in 2007.

Passenger growth at ISG in the first 11 months of this year was 19.5% year on year, compared with the weak 0.7% growth seen at MAHB’s airports in Malaysia during the same period.

ISG and LGM Havalimani, which were loss-making when MAHB completed the acquisition in January, recorded a profit before tax of RM30.6 million for the first nine months of FY2015, prior to taking into account the loss of RM142.4 million recognised primarily due to the amortisation of fair value for the concession rights.

Maybank Investment Bank Bhd and CIMB Investment Bank Bhd were the joint advisers for the deal, while Deustche Bank was the lead financial adviser.

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