The first foreign owner of French aviation infrastructure is offering to sell its stake in the Toulouse-Blagnac airport, barely five years after winning the bid to own the hometown airfield used to test Airbus aircraft.
Casil, a venture between Shandong Hi-Speed Group and Hong Kong’s Friedmann Pacific Asset Management, is putting a 49.99 per cent stake in Toulouse-Blagnac on the block, its president Mike Poon Ho-man said in an interview with South China Morning Post. Casil paid €308 million (US$350 million) in 2014 for the biggest single stake of France’s fifth-largest airfield.
Casil has engaged the investment bank Lazard to find potential buyers, getting indications of interest from French construction firms Eiffage and Vinci, as well as the French private-equity fund Ardian, and Australia’s Macquarie Group, Le Figaro reported on February 3.
Casil’s plan to pull out was spurred by the Chinese owner’s inability to “access” the airport’s remaining shareholders to jointly develop and expand Toulous-Blagnac, Le Figaro said, citing the French economy ministry in saying that the stake owners are “disengaging.”
Casil’s withdrawal comes at an awkward moment as Chinese President Xi Jinping heads for Italy, France and Monaco this week in his first overseas trip of 2019 to drum up interest and investments for his Belt and Road Initiative (BRI) to build infrastructure along the ancient Silk Road from China to Europe and Africa. The Chinese company stated its strategic focus as the acquisition and operation of aviation-related assets along the Belt and Road to exploit growth in China’s outbound tourism.
“It’s a little strange if the company really wants to sell its stake now, given how short it has held the stake,” said David Yu, adjunct professor of finance at New York University in Shanghai, who also write an aviation column.
Casil is probably “testing the water. The time horizon for infrastructure investment is longer than other assets, longer than 25 years on average,” Yu said.
The first stop for the Chinese head of state will be Rome, where the Italian administration headed by Prime Minister Giuseppe Conte is the first Group of Seven (G7) nation to sign up to the Belt and Road plan.
Xi will be in Paris next Tuesday, where French President Emmanuel Macron is scheduled to invite German Chancellor Angela Merkel and European Commission President Jean-Claude Juncker to a joint meeting.
“No final decision on a sale has been made,” Casil said in a statement this week in response to the Post.
Still, its offer to sell underscores the difficulties encountered by Chinese companies in their global acquisitions for assets. Many of China’s largest companies and biggest war chests have bought assets abroad over the years, but few can claim to be truly successful in integrating their acquisitions into Chinese ownership.
“Aviation-related infrastructure is good investment for its stable returns in the long term,” Yu said. “But there is a lot of uncertainties in acquisitions in the EU, especially with simmering issues including” Britain’s exit from the region, he said.
A handful of successful Chinese acquisitions do exist: Tycoon Guo Guangchang’s Fosun Group owns the French resorts operator Club Med, and has made it the flagship of its worldwide tourism growth. Midea Group in Guangzhou owns the German robotics maker Kuka, while Zhejiang’s Geely Automobile Holdings own Sweden’s Volvo Cars.
Acquisitions by Chinese investors rose 86 per cent last year to US$1.83 billion, while Italy’s share of Chinese capital dropped 21 per cent to US$800 million, according to Baker McKenzie.
Toulouse-Blagnac is the fifth-largest airfield in France after Charles de Gaulle in Paris. It handled 9.6 million passengers last year, 28 per cent more than in 2014, connecting 74 flight routes mostly in Europe and northern Africa.
Located less than 7 kilometres (4.3 miles) from Airbus’ base in Toulouse, the airfield has been the testing site for most of the manufacturer’s new aircraft. When the Airbus A380 double-decker aircraft took off on its maiden flight in April 2005, it did so at Toulouse-Blagnac.
Its revenue rising by almost 22 per cent to €147 million last year, from €120.6 million when Casil bought it in 2014. Earnings before interest, taxes and depreciation (Ebitda) rose to €51.9 million from €41.4 million in 2014.
Before the privatisation of Toulouse-Blagnac, the French government owned 60 per cent of the airfield. After selling the largest stake to Casil, the French state retained control through local authorities such as the Toulouse Chamber of Commerce and Industry, with a 25 per cent stake.
Casil’s full name is China Airport Synergy Investment Limited, established in 2014 in Hong Kong. It’s an early adopter of the Chinese government’s Belt and Road, aiming to exploit China’s outbound tourism to these countries. Besides Toulouse-Blagnac, Casil also owns and operates the airport in the Albanian capital of Tirana, in a venture with China Everbright.
Poon, a Chartered Financial Analyst who attended the University of Hong Kong and Tsinghua University, is also founder and chief executive of China Aircraft Leasing Group (CALC), listed on the Hong Kong exchange since 2014. Casil and China Aircraft Leasing are unrelated, except through Poon as the common shareholder.
Casil’s winning bid in 2014 was 17 per cent higher than its nearest rival. The company has invested €84.1 million cumulatively in the airport as at the end of last year, almost a third higher than its €63.9 million when it won its bid, according to a statement.
Still, the Chinese company is “positive on the investment prospects in France and Europe,” given the strong fundamentals and economic stability over the years, in addition to the low-interest monetary environment, Poon said, declining to comment on reports of “disengagement” with his fellow shareholders.
“We saw steady increase in the valuation of airport infrastructures in the region over the last couple of years,” he said. “Therefore, we favour infrastructure, especially aviation-related infrastructure.”
Poon himself briefly disappeared from view for several weeks in June after Casil’s purchase of the French airport, caught up in a government investigation into corruption in China’s aviation industry.
“I was interrogated in relation to these investigations,” but released without charge, Poon said in an October 2017 interview with Le Journal du Dimanche. “What is essential is that everything [in Casil and Friedmann Pacific] was found to be in compliance with the law. I never stopped working during that period.”