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Saudi Arabia’s PIF to buy stake in London’s Heathrow Airport, joins Singapore’s GIC, Qatar wealth funds in ownership

arifnsn November 29, 2023

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Saudi Arabia’s Public Investment Fund will buy a 10 per cent stake in London Heathrow Airport as part of a shareholder reshuffle, becoming a partial owner in one of Europe’s busiest airports alongside the Qatar Investment Authority.

The fund is buying the stake as Spain’s Ferrovial sells down its 25 per cent holding. The remaining 15 per cent held by the infrastructure firm will go to Ardian, a Paris-based private equity firm, according to a statement late Tuesday. For Ferrovial, the deal represents a £2.37 billion (US$3 billion) windfall for an asset it had previously valued at zero.

The Public Investment Fund, better known as the PIF, has become a major investing force around the world as Crown Prince Mohammed bin Salman, Saudi Arabia’s de facto leader, reshapes the oil-rich country with his own brand of state capitalism.

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The fund, part of a consortium that bought Vodafone Group Plc’s towers unit in 2022, aims to reach US$2 trillion in assets by 2030. That would make PIF the world’s largest wealth fund, a title now held by Norway’s oil fund.

Ferrovial, whose airport interests span the UK, Turkey and a stake in one terminal at New York’s John F. Kennedy, said earlier this month it would consider a sale of its holding in London Heathrow. Air traffic has rebounded after being decimated during the Covid-19 pandemic, helping Heathrow to narrow its losses over the first nine months of this year.

The Spanish company’s exit ends almost two decades of ownership in the UK airport. It bought a majority in the airport operator, then called BAA Plc, for US$18.8 billion in 2006, eventually reducing its stake to the now 25 per cent.

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Long-term partner

Ardian and the Saudi public fund would join existing owners including Qatar, which holds 20 per cent, and smaller investors Caisse de dépôt et placement du Québec, Singapore’s GIC sovereign wealth fund, and Alinda Capital Partners of the US. Each has a stake below 13 per cent.

Ferrovial rose as much as 3.2 per cent to €31.94 in Spanish trading. Analysts at Citigroup Global Markets said the planned disposal is positive for the infrastructure company “as the cash proceed should help to reduce net debt and any potential shareholder distribution through dividends.”

PIF said the purchase is “in line with its strategy to support the business as a long-term partner, calling Heathrow a “world-class airport.”

While the UK airport remains a major global gateway, its growth prospects have been stunted by the lack of progress on a third runway, restraining capacity at Heathrow while destinations like Turkey, Qatar and Dubai aggressively expand their airports, often running them around the clock.

After owning the UK travel hub for 17 years, Spanish infrastructure giant Ferrovial announced it is offloading its remaining 25 per cent stake in London’s Heathrow Airport. Photo: AFP

Prized assets

In the UK, PIF also owns soccer club Newcastle United FC, part of a broader push to invest in sports assets. The UK has been an attractive market for investors from the Gulf – Qatar owns a stake in British Airways parent IAG SA, as well as marquee assets like the Harrods department store in London and a collection of luxury hotels.

PIF owns a stake in Aston Martin, the UK carmaker best known as the vehicle of choice for James Bond.

A ruling by the UK competition watchdog last month on landing fees also left both airlines and Heathrow dissatisfied: while carriers had wanted charges to be lowered, Heathrow Airport had sought to collect higher fees.

Heathrow is a major destination for flights from the Gulf region, with Emirates, Qatar Airways and Etihad Airways PJSC all serving the hub with multiple arrivals a day.

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Saudi Arabia is in the process of expanding its airline industry, seeking to attract more business and tourism to the country. It recently created Riyadh Air, a new airline that will operate in addition to existing flag carrier Saudia.

The Heathrow deal is subject to approvals, as well as the rights of existing shareholders to join the transaction as sellers or buyers under a prior shareholder agreement.

Ferrovial said it remains committed to advancing its airport business. It owns a 50 per cent share in Aberdeen, Glasgow and Southampton airports in the UK, 60 per cent of Dalaman Airport in Turkey and 49 per cent of JFK’s New Terminal One.

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