Sydney Airport's register takes flight

Macquarie’s decision to distribute some 340 million Sydney Airport stapled securities to shareholders as a capital return is set to blow open the airport operator’s shareholder register.

Over the past year, less than one per cent of Sydney Airport’s shares have been traded as the lion share of the register is dominated by institutional investors with no intention of trading their holding, led by Macquarie with an 18 per cent stake. Sydney Airport’s appeal, especially to institutional investors, is the offering of a quality infrastructure investment with growth potential and a solid dividend yield.

Now with additional shares finding a home with retail investors, potential Sydney Airport investors can expect a higher turnover and more opportunity to buy into the revered company. Across the listed space, there are very few sound infrastructure investment opportunities available, adding to the appeal of Sydney Airport. 

The course of this year has seen Sydney Airport undergo dramatic changes. When Sydney Airport consolidated all subsidiaries back in August, it gave the market additional clarity about future cash flows and what could be expected in the years ahead.

Dealing with the tax uncertainty that was hanging over Sydney’s head has left it with a clean slate and more certainty over future cash flows. At the same time, the foreign ownership allowance was increased to 49 per cent from 40 per cent, sparking speculation Macquarie might shop its significant stake around to an infrastructure-hungry foreign pension fund.

Macquarie’s decision to pay $1.4 billion worth of Sydney Airport stapled securities out as a capital reward is an unusual way to return value to shareholders. The past five years have been dramatic for Macquarie and shareholders have endured terrifying times as the share price collapsed and dividend payments were slashed.

The capital return by Macquarie leaves the door open to assume the financial service provider sees market conditions gaining further from here, improving returns on its core business operations.

After the payment of Sydney Airport shares, Macquarie will consolidate on a 0.9438 for one basis to adjust for the capital return, further increasing shareholder value by reducing the number of shares outstanding. 

The move to return capital as a way to increase shareholder value fits into the theme pervading global equity markets – investors prefer assured returns today over the uncertainty of what future returns may be. Ordinarily this has been achieved through share buy backs, but a capital return and share consolidation has a comparable effect.