Sydney Airport to raise $2b to mitigate major loss

Sydney Airport to raise $2b to mitigate major loss

As uncertainty reigns supreme in the air travel sector, Sydney Airport (ASX: SYD) has announced a $2 billion equity raising to build a balance sheet buffer.

The move follows a rough year for the airport as COVID-19 restrictions more or less slowed passenger levels to a crawl.

As such, the airport reported a $53.6 million loss for the half year, down from a $17.3 million profit in the first six months of 2019.

The equity raise at $4.56 per new share represents a 15.4 per cent discount to SYD's closing price. According to CEO Geoff Culbert the raise will position the airport for the future.

This price is marginally above SYD's 52-week low of $4.37 per share, recorded when international travel restrictions were implemented in mid-March 2020.

"Sydney airport took pre-emptive action at the start of the COVID-19 pandemic, putting in place significant liquidity which gave us the flexibility to monitor how the situation evolved," says Culbert.

"Six months into the pandemic, there remains uncertainty as to how long it will take for aviation markets to return to pre-COVID-19 levels.

"Accordingly, Sydney Airport is taking further decisive action to strengthen its balance sheet and to help ensure it remains well capitalised to meet the challenges presented by an uncertain COVID-19 operating environment, and to ensure it is positioned for growth in the future."

Following the entitlement offer Sydney Airport's net debt position will be reduced from $9.1 billion to $7.1 billion.

Further, the raise will provide adjusted liquidity of $4.6 billion as at 30 June 2020. At the end of the first half SYD has $2.6 billion of available liquidity, including $1 billion in cash and $1.6 billion of undrawn debt facilities.

During the half year Sydney Airport welcomed 9.4 million passengers, representing a 56.6 per cent decline on the same time last year.

Most of the decline in passengers was felt in the second quarter, when only 400,000 people travelled through the airport; a 96.6 per cent decline on 2019. International passengers levels declined by 57.3 per cent and domestic levels by 56.1 per cent.

Because of this slowdown EBITDA dropped 35.4 per cent on the prior corresponding period (pcp) to $300.4 million.

"We announce our half year results today in a challenging environment," says Culbert.

"Whilst we deliver a solid start to 2020, the subsequent spread of COVID-19 saw the aviation industry deteriorate dramatically from late February.

"As an organisation we have adapted rapidly to a new environment and worked hard to tightly manage our costs, strengthen our balance sheet, reach fair and equitable outcomes with our tenants and aviation partners, and implement COVID-safe protocols to protect our passengers and staff."

Sydney Airport says COVID-19 has specifically impacted the company's results in a number of ways, including an expected credit loss of $40.9 million (including the impairment of pre-administration Virgin Group debts), an impairment charge of $22.2 million, and $52.9 million in the form of rental abatements and rent deferrals of $6 million.

Because of COVID-19 uncertainty, Sydney Airport says no distribution is expected to be declared for 2020.

Further, the company will be conducting an operational review to restructure the organisation, potentially resulting in staff layoffs. This is because the staff Job Guarantee will not be extended beyond 30 September 2020.

The airline has also announced an $85 million acquisition of Joint User Hydrant Infrastructure's jet fuel infrastructure. 

Skytanking has been selected to operate the facilities, and the airport says the acquisition will result in greater control over infrastructure investment decisions to support future growth.

In addition, the company has extended its current aeronautical arrangements for Jetstar domestic and Qantas group domestic runway and internaitonal operations until 30 June 2021.

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