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Capital Markets

Equity capital markets: Aena row dampens international interest in Spain

TCI sues competition commission; investors fear regulatory and political risk.

The privatization sale of Spanish airports operator Aena, which raised $4.8 billion equivalent in February this year, looked like a big success for the Spanish government and for investors that bought the deal. Priced at €58, the shares hit €70 on the first day of trading, traded up close to €100 in April and were still up 70% from the issue price in the middle of July.

Ana Pastor Julian-160x186
© Carlos Jasso / Reuters

Ana Pastor Julián, minister
for public works, Spain

But a legal row over proposed changes in the regulatory regime and the tariff structure, which had seemed set in stone before the IPO, now threatens to overshadow that success. The biggest single foreign investor in the IPO, UK-based hedge fund, The Childrens Investment Fund (TCI) – now, with a 7.7% stake, the second biggest investor in Aena behind the Spanish government, which still owns 51% – has filed claims in Spain’s national court, Audiencia Nacional, contesting a new tariff regime proposed by the Spanish Comisión Nacional de los Mercados y la Competencia (CNMC), the country’s national markets and competition commission. 

The CNMC is seeking to change the allocation of airport costs materially, shifting costs from the airline companies onto Aena, which TCI claims may cause economic damage to the company exceeding €1 billion.

Separately, Aena itself has also appealed against the decision to the same court. Investors are left reeling, as one part of the Spanish government seems to be in conflict with another. Obscure political rivalries lurk in the background.

TCI is pulling no punches in the matter, noting that the Spanish government set out through the IPO process to attract international investors that were fundamental to the success of a deal that signalled renewed access for Spain to foreign capital to drive economic growth. Now all that may be in doubt.

TCI states: “The CNMC’s surprise action creates legal uncertainty not only for investors in Aena, but in all Spanish regulated entities. Just as Spain is emerging from its economic downturn, the CNMC’s proposed actions damage confidence in Spanish capital markets by raising questions over whether the rule of law will be upheld.”


TCI is seeking a short-term injunction to freeze the CNMC’s imposition of lower tariffs while longer consideration is given to its claims that the CNMC, while it is entitled to review if Aena has acted fairly and transparently in dealings with airlines, is over-stepping its legal competence in suggesting a whole new charging regime. 

Lawyers in Spain suggest that the main claim may take years to resolve. And it will be tough to extract a swift decision to suspend the new regime suggested by the CNMC as Spanish courts do not work speedily through the summer and the Spanish government must draft its budget law for next year, including expected contributions from Aena. 

If the CNMC’s new suggestions get incorporated from the outset, it will be hard to disentangle them from the new regulatory regime into which the company has not yet fully transitioned, under the so-called Document of Airports Regulation, which sets charges with a five-year horizon. Spanish research company N+1 notes: “This dispute generates uncertainty on 2016 tariffs as well as on tariffs for the period 2017-21, as 2016 will be the basis for their calculation.”

Whether the damage to the value of the enterprise from the CNMC’s actions is as little as €1 or as much as €1 billion,
there is an important principle at stake here


Jose-Francisco Ruiz Solera, analyst at Deutsche Bank, has a sell on the Aena stock, following the run up since the IPO. He notes: “Aena looks like a resilient cash cow with moderate growth potential related to a recovery of traffic in Spain. However, there are also risks relating to potential cuts in tariffs.”

The technicalities of the dispute relate to a shift for the regulated airport tariff regime to the so-called single-till structure, away from the dual-till structure that was incorporated into the draft regime established back in 2012 on which Aena’s privatization was based. 

Under a dual-till structure, which airport operators favour, the cost of providing core regulated airport services, such as a passenger control, transit and boarding, are met out of passenger tariffs, leaving airport operators free to separately agree deals with commercial operators of shops and restaurants. A single-till structure, which the CNMC seems to be suggesting, blends the costs of providing both core regulated and commercial activities together and by doing so shifts more of the cost burden onto airport operators. 


It’s a confusing situation. The CNMC brought forward its new regime in April, suggesting a cut in tariffs of as much as 3.5% this year. Aena objected in court, questioning not only the CNMC’s right to change the rules, but the provenance of its calculations. It now seems the cut to tariffs this year could be under 2%, if the CNMC gets its way, as it has already reviewed its own suggested formula.

Behind the scenes, sources in Spain point to a political conflict within the government between the ministry for public works headed since 2011 by Ana Pastor Julián – which took over Aena 10 years ago when it was unprofitable and heavily indebted and appointed new management that has turned it into a source of $4.8 billion of proceeds for the government – and other ministries. 

In February, Ana Pastor hailed the IPO, saying: “It is a major success” for all Spaniards. It seems hackles were raised among rivals that would have liked to claim some credit for this success, including the president’s economic office headed by Alvaro Nadal.

Sources trace the dispute back to a row over whether Aena should continue to operate all 46 Spanish airports or maximize value just from leading airports such as those in Barcelona, Madrid and the Canaries – among the busiest in Europe. Aena management resisted that idea and held out to operate all the country’s airports – including 26 smaller, loss-making ones – as a single network, so as to optimize purchasing power and prevent airlines from setting one Spanish airport in competition against another to reduce their charges. 

This internal political infighting may also have been behind the delay in the IPO, originally scheduled to take place in November 2014 but postponed until February this year, for obscure reasons while the role of auditor to Aena was put out to a renewed tender.

Some sources in Spain suggest that TCI should have known to be cautious, given the fraught experiences of many specialist infrastructure funds, which had invested in the renewable energy sector in Spain attracted by 15% annual return calculations based on generous public subsidies. The Spanish government reneged on these as the eurozone crisis hit the country in 2011 and 2012, and, by not only capping subsidies but also seeking claw backs, forced a number of projects to sue the government. 

Bankers say that the Spanish government had hoped to attract interest in Aena from a dozen potential cornerstone investors in the IPO before coming down to a final list of two international and one Spanish cornerstones. Interest was far smaller than this, with fewer funds coming forward. TCI ended up as the only international cornerstone, alongside Spanish infrastructure specialist Ferrovial and family office Corporación Financiera Alba. 

Due diligence

One source close to the situation tells Euromoney: “TCI has a lot of experience investing in IPOs in the regulated utility sector. TCI bought a substantial stake in Red Eléctrica de España, which it still owns, 10 years ago. So in the run up to the privatization of Aena, TCI and its Spanish lawyers spent six months reviewing the regulatory regime and concluded that it was rock solid. It could only be over-turned with a royal decree and a change of the law through parliament. Even though some of the infrastructure funds decided not to participate in the Aena IPO because of previous bad experiences in the renewables sector, TCI took comfort that this was a brand new regulatory framework, under which the CNMC is not the regulator of the airport operator, rather the General Direction for Civil Aviation is.” 

Further reading


Eurozone fragmentation:
special focus

TCI itself points out: “The tariffs Aena charges to airlines are already below industry averages. The 10-year freeze established by law in 2014 will result in an annual decrease in the tariff on an inflation-adjusted basis, as compared to most airport tariffs which automatically rise based on inflation.”

Sources in Spain say that other international portfolio investors in Aena stock at the IPO have made their views known to the government. None has gone public, as TCI has chosen to. It’s an unfortunate turn of events given the profile of the deal. This was the largest IPO in Europe since Glencore in 2011 and the largest privatization in western Europe since EdF in 2005. 

It’s hard to tell how far regulatory risk weighed on the initial valuation of the stock, which brought in a large sum for Spain but which may have disappointed some in the government hoping to sell at closer to €80 per share, rather than at €58. 

Deutsche’s Ruiz Solera notes that the stock’s dividend yield of 2.5% doesn’t look terribly exciting next to the yield on 10-year Spanish bonds of around 2% following the subsequent rally.

But one source close to the situation points out that on a free cash-flow yield, Aena trades at around 8%, while other European airport operators such as Fraport trade at between 3% and 4% and Aeroport de Paris at 2%. That gap should close. “Some people have said to TCI: ‘Look the share price has gone up a lot, why stick around?’ But TCI is committed for the long-term. Whether the damage to the value of the enterprise from the CNMC’s actions is as little as €1 or as much as €1 billion, there is an important principle at stake here.”

Bigger issue

The row highlights a bigger issue around Europe as governments seek to mobilize debt and equity investment into infrastructure to boost growth and productivity, but can’t seem to stop themselves changing the rules even on long-term contracts. It’s not just happening to equity investors in the eurozone periphery. The French government froze expected increases in toll road charges earlier this year hitting bondholders, while the government reviewed for possible renegotiation or early termination its own long-term concession agreements with operators.

The French government now says it is intent on preserving drivers’ purchasing power and increasing the toll road operators’ contribution to financing transport infrastructure. But it is changing the rules after the match has already started.

Juliana Gallo and Aurelie Hariton-Fardad, credit analysts at Standard & Poor’s, note: “There could be rating implications if the government’s decisions lead us to reassess our view of the predictability of the regulatory and contractual environment in France, or if we consider them detrimental to the concessionaires.”

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