Malaysia’s first airport REIT expected to spur higher private investments

Ground crew work among Malaysia Airlines planes on the runway at Kuala Lumpur International Airport (KLIA) in Sepang July 25, 2014. REUTERS/Olivia Harris/Files

Malaysia’s plan to develop the world’s first-ever airport Real Estate Investment Trust (REIT) is part of the government’s plan to spur higher private sector involvement in the field, said transport minister Anthony Loke.

Last week, Malaysia finance minister Lim Guang Eng announced, in the Budget 2019, that the government would set up the airport REIT with hopes to raise RM4 billion ($960 million) via a 30 per cent stake sale to private investing firms.

“The government’s plan, as mentioned previously, is to bring in the private sector to invest to develop airports in the country,” he was quoted as saying by The Edge, adding that more details of the REIT will be released by the finance ministry.

According to a separate report by The Edge, Malaysia Airports Holdings Bhd (MAHB) is of the view that the formation of the airport REIT is a way for the government to securitise its infrastructure assets.

MAHB said it will await further direction from the government in order to get a clearer picture on the implementation mechanism of the proposed airport REIT.

“In the meantime, we will still continue with the Operating Agreement finalisation discussion with government and the Regulated Asset Base study with the Malaysian Aviation Commission (Mavcom) as a way for us to undertake the capital expenditure needed for the future upgrading and expansion of the airports,” said an MAHB spokesperson.

The investors of the proposed airport REIT will receive income arising from user fees collected from MAHB which has the concession to operate these airports.

Bursa-listed MAHB manages and operates 39 airports in Malaysia and one international airport in Istanbul, Turkey. It counts the Malaysian sovereign wealth fund Khazanah Nasional Bhd as its largest shareholder, which holds 33.32 per cent stake in MAHB.

“This REIT exercise will only be carried out after the new Regulated Asset Base and user fees structure has been negotiated and finalised. Going forward, the airport REIT will have the opportunity to raise funds publicly either by issuing new REIT units or via borrowings in order to fund the improvement and expansion of airports, especially those facing over-capacity. This financial structure will significantly reduce the debt burden of the Government to fund all of these projects on its own, while maintaining MAHB as an asset light operator not bogged down by heavy capital investments and debt. Other projects could also benefit from similar funding and investment structures, such as hospitals, or rail infrastructure,” said Lim.

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