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Top pension fund urged to buy airport concessions

by Shigeru Sato and Emi Urabe

Bloomberg

New Kansai International Airport Co. is seeking to attract the state-run retirement fund to a sale of two airport concessions that could raise as much as ¥1.2 trillion.

The Government Pension Investment Fund, the world’s largest, with $1.2 trillion under management, “is a strong future candidate investor for infrastructure, including these airports,” said Shinichiro Okada, who is overseeing the concession sale for New Kansai. He declined comment on whether the parties are currently in talks.

“Airport concessions will be a new asset class that would attract pension funds in Japan,” Okada, who formerly worked at Macquarie Group Ltd.’s infrastructure business in Japan, said Monday in Osaka.

Government-owned New Kansai plans an auction next year of operation rights to two airports in Osaka Prefecture, part of a push by Prime Minister Shinzo Abe to cut public debt and boost private investment.

GPIF plans to start investing in infrastructure as it seeks to increase returns, sources said this week. Tomoyuki Hirao, a spokesman for GPIF, declined comment.

Ontario Teachers’ Pension Plan, Canada’s third-biggest retirement fund manager, posted a 13 percent return on investment last year. Real assets such as property, infrastructure and timberland returned 15 percent, while fixed-income investments returned 5.1 percent, according to a statement in April.

“Infrastructure is a middle-risk and middle-return investment vehicle that typically yields annual return of more than 10 percent,” Okada said. “Globally, pension funds typically allocate a certain portion of their money pool to infrastructure.”

New Kansai operates Kansai International Airport, which opened in 1994 and sits on an artificial island in Osaka Bay, as well as Osaka International Airport, which was built in 1939 and now focuses on domestic flights. The company aims to repay almost all of its roughly ¥1.2 trillion debt through the airport concession sales, Okada said.

Osaka, Japan’s second-biggest economic area, is home to electronics makers Panasonic Corp. and Sharp Corp. Kansai International is the country’s fifth-busiest airport, handling 16 million passengers annually, while Osaka airport ranks seventh with 13.2 million passengers, according to data compiled by the transport ministry.

The number of foreign tourists visiting Japan is poised to surpass 10 million for the first time this year, beating the previous record of 8.3 million in 2007, according to a report Wednesday by the Japan National Tourism Organization. The government has said it aims to boost the number to 18 million by 2016.

The 2020 Tokyo Olympics and the growing popularity of the country’s pop culture and cuisine could help bring more tourists, boosting the attractiveness of Japanese airports to both foreign and domestic investors, Okada said.

“Our airport concessions will be a stepping stone to the expansion of Japanese infrastructure investments,” said Okada, 42.

Bidders for the Osaka airports could be groups combining an airport operator with a strong track record with a financial investor like a pension fund, infrastructure fund or sovereign wealth fund, Okada said.

Brazil last month sold its second-busiest airport for almost four times the minimum bid. A group including Brazilian engineering firm Odebrecht SA and Singaporean airport operator Changi Airport Group paid 19 billion reals ($8.2 billion) for the rights to operate Rio de Janeiro’s Galeao airport for 25 years.

Takatoshi Ito, head of an advisory panel to GPIF, said last week the fund should cut local debt holdings immediately to 52 percent of assets, its lower limit, from 58 percent as of Sept. 30 in a bid to seek higher returns.

GPIF should consider investing more in overseas assets, private equity, commodities, infrastructure and real-estate investment trusts, the panel said in November.