SYDNEY (July 15): Sydney Airport Holdings Pty Ltd said on Thursday it would reject a A$22.26 billion ($16.6 billion) takeover proposal from a group of infrastructure funds, the biggest of a frenzy of Australian deals in reaction to record-low interest rates.

The operator of Australia's largest airport said directors had unanimously concluded the proposal undervalued the airport and was not in the best interest of shareholders. If successful, it would have been one of Australia's biggest buyouts.

Record-low interest rates have prompted pension funds and their investment managers to chase higher yields, leading to recent asset purchases from Telstra Corp and Qube Holdings.

Spark Infrastructure Group, which has a market value of $3.2 billion, on Wednesday entered a trading halt after media reports it had received a buyout offer.

The Sydney Aviation Alliance - a consortium comprising IFM Investors, QSuper and Global Infrastructure Partners - last week offered A$8.25 per share, a 42% premium to pandemic-ravaged Sydney Airport's last trading price before the offer was made.

The airport's shares closed at A$7.80 on Wednesday before the proposal was rejected, amid uncertainty over whether the board would accept the proposal, which was contingent on its recommendation.

The company said on Thursday it recognised its share price was likely to trade below the consortium's indicative price in the short-term but said it would only progress a change in control transaction that would "deliver and recognise appropriate long-term value".

The Sydney Aviation Alliance did not respond immediately to a request for comment.

The Australian government has a 49% cap on foreign ownership of airport operators. IFM, QSuper and UniSuper are Australian investors, while Global Infrastructure Partners is from the United States.

Jefferies analyst Anthony Moulder last week said the proposal was seen as a good start, but not one that gave a sufficient takeover premium to the current fair value.

Sydney Airport is Australia's only listed airport operator and a purchase would be a long-term bet on the travel sector. The city is currently in lockdown for at least two more weeks after a rise in COVID-19 cases.

A successful deal would bring its ownership in line with the country's other major airports which are owned by consortia of infrastructure investors, primarily pension funds.

Australia's mandatory retirement savings system, known as superannuation, has assets of A$3.1 trillion, according to the Association of Superannuation Funds of Australia.

A Sydney Airport purchase, with an enterprise value of A$30 billion including debt, would allow them to reap financial benefits when borders reopen and travel demand rebounds.

If successful, the purchase would be one of the country's largest by enterprise value in U.S. dollar terms, on par with the $22 billion purchase of mall operator Westfield Group by Unibail-Rodamco in 2017, Refinitiv data showed.

Bloomberg News last week reported a consortium led by Macquarie Group was considering a rival offer, citing unidentified sources. The report added talks were at an early stage and Macquarie could also consider joining the Sydney Aviation Alliance.