Investment bank and asset manager Macquarie Group Ltd (ASX: MQG) is reported to be interested in bidding for London City Airport in the UK according to a report in today's Australian Financial Review.
The airport is majority owned by U.S. investment groups that have reportedly appointed capital markets fixer Credit Suisse to tout the airport for a price in the region of $4.3 billion.
Macquarie already holds substantial stakes in multiple regional UK airports, although London City is an especially attractive target due to the unique time-saving proposition its location offers travellers, which is reflected by strong underlying demand for its route networks.
In today's world of low interest rates and tanking 10-year plus bond yields it's no surprise that airports are red-hot assets due to their solid cash-generating qualities as critical pieces of worldwide infrastructure.
A global macro environment of benign inflation, low rates and weak growth are all holding the yields on government issued debt down, which means assets like airports are top of the shopping list for cashed-up sovereign wealth funds, pension funds and private sector investment groups globally.
Macquarie then is likely to face some strong competition for the airport from rivals, while the strategic decision to dump its majority stake in Sydney Airport Limited (ASX: SYD) around the end of 2013 comes back into focus.
The bank's decision to sell its holding in Sydney Airport lifted return on equity, but looks premature with hindsight as asset values globally continue to appreciate due to the flight of capital away from bonds into higher-yielding asset classes like infrastructure and property in the form of REITs.
Since the group sold its stake in Sydney Airport just over one-and-a-half-years ago the airport has appreciated more than 40% in value and thrown off an attractive yield around 5% in the process.
Macquarie's reported interest in London City Airport means it will want to avoid the impression of chasing its tail, especially if the predicted normalisation of interest rates in the US signals a return of global capital away from overvalued infrastructure assets into low-risk assets like government debt.
Still nothing excites your average Macquarie employee like the prospect of a blockbuster deal (except bonus time) and this looks a story to watch as Macquarie's move into the asset management space continues apace.
