Infratil and Wellington eye loan to airport

Infratil and Wellington Council are preparing to lend Wellington Airport funds to help it cope with a traffic collapse because of Covid-19 restrictions, Dileepa Fonseka reports from Infratil's update to investors

Wellington City Council and listed investment firm Infratil are preparing a loan to support Wellington Airport, which has seen aircraft and passenger traffic collapse since late March.

Chairman of Wellington Airport, Tim Brown, said shareholders Infratil and Wellington City Council could provide a loan that was convertible into shares as backstop facility for the airport, which last year earned $138 million in revenues from landing charges and rents from shops and carparks. The airport, which is two-thirds owned by Infratil and one-third by the council, had $405m in debt as at March 31 last year.

The Government lent Air New Zealand $900m last month with the ability for that to be converted into shares at their request.

Brown envisaged the Wellington Airport underwrite as a loan - or a convertible-loan type arrangement - that would be quickly put up by shareholders further down the track if it were needed.

"The lenders, and the Airport for that matter, would like to know that the shareholders are there if necessary," Tim said.

"The Airport's discussions with Wellington City Council have been very constructive. The Council's very busy at the moment as you could probably imagine so we're hoping that it will actually go to the councillors next week," he said. 

"With a little bit of a luck we might actually have something concrete come next Friday."

Wellington Council is grappling with a slump in revenues from city carparking and faces calls for rates freezes and rates deferrals from business ratepayers, many of whom face their own revenue collapses. The Council is also having to deal with massive earthquake-related rebuilding costs for its abandoned library and office buildings, along with the strengthening of the Wellington Town Hall. It can also expect big bills to rebuild water infrastructure that is crumbling.

Support from Beehive not expected

Infratil CEO Marko Bogoievski said he did not expect the Government to provide money to Wellington City Council for the loan.

"I think there is potentially a scenario here where a lot of the ... central government initiatives have been focused on things they directly control," Bogoievski said.

"So we would advocate much more attention on local government stresses. And I think we can play a part in helping them there, but we're not relying on Government supporting Wellington City Council specifically when thinking of that equity support," he said.

Bogoievski said Wellington Airport was a "very dramatic" case of a business that had gone from robust to one with "limited revenue visibility" within a short space of time thanks to the Covid-19 outbreak. 

Infratil forecast 66 percent of the airport's traffic would return next year. Two years from now it would reach 85 percent of pre-Covid levels. 

Forecast downgraded

During an investor call on Wednesday morning the firm revised its earnings guidance downwards from the $575-615m EBITDAF it signalled before the pandemic to $550-$560m. 

On the same day the company revised its expectations, Infratil said it expected cash to arrive from Tilt Renewables, which make up 17 percent of Infratil's investment portfolio. Earlier on Wednesday, Tilt announced a share buyback that would see $169m head Infratil's way. 

Bogoievski told investors on Wednesday morning that the Airport and RetireAustralia were the two biggest "unknowns in our portfolio". 

"We think we've got a very diversified portfolio with very defensive characteristics. But under any sustained period of slowdown any asset, any portfolio, any business is going to get challenged," Bogoievski said. 

Bogoievski said the company still expected its dividend payout to reach a "substantial portion" of the 11c per share dividend delivered last year. The exact amount would be finalised at the end of May. 

The 'unknowns'

RetireAustralia, which owns a network of retirement homes in Australia, was expected to bear the brunt of its own demographics, which were particularly vulnerable to Covid-19. 

Bogoievski said a requirement that homes be bought back by the company if they remained unsold for a period of time could impact the firm's cashflow. The company was also working in an environment where house prices might not run as high as they had once been expected to. 

Peter Coman of Infratil said they expected resale volumes of retirement units to be impacted by the crisis and house prices too. 

"I'm sure you're aware that the Australian Government suspended auctions and home viewings for houses. Which obviously flows through to the sale of retirement units," Coman said.

Vodafone and Trustpower

Trustpower and Vodafone had also taken a hit from Covid-19 but in different ways. 

Nationwide energy usage was down 15 percent despite the lockdown and the greater amount of energy being used by people at home.

Retail energy usage had risen, but it had been outweighed by a sharp decline in commercial and industrial electricity demand under lockdown.

Vodafone's retail arm and its earnings from international roaming fees would also suffer due to measures associated with Covid-19. 

Vodafone's earnings were expected to be within guidance but at the lower end of the $460-490m range signalled.

Infratil's investor slideshow noted Vodafone had "significant" headroom to borrow and no long-term debt refinancing was required until July 2022. 

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