Shares of Sydney Airport Holdings Ltd (ASX: SYD) have crashed 6.8% today and are now trading only marginally above their 52-week low of $5.82.
Although the airport operator has not released any market announcements today, a number of factors are playing havoc with its share price.
1. Funding of new Western Sydney Airport
The Federal Government confirmed earlier this week that it would allow Sydney Airport to operate the new Western Sydney Airport for 99 years, but the company would have to stump-up all of the funding necessary to develop the project. This is expected to cost between $5 billion to $6 billion and the market is clearly concerned this will dramatically alter the company's risk profile. Project risks for the development are also high with the construction and procurement phase expected to last around 10 years before the new airport opens.
2. Broker Downgrade
Morgans has today downgraded Sydney Airport's shares to a 'hold' following the news that it will not receive any government funding or cost protections for the new airport. The broker believes the proposal will significantly increase the company's risk profile and reduces its base case valuation for the shares. Despite this, the broker still has a price target of $7.04 on the stock, down from $7.85.
3. Rising bond yields
A number of interest rate sensitive shares, including Sydney Airport, have been hammered over the past few months as rising bond yields have made them less attractive investments. Not only do their dividend yields become relatively less attractive, their potential earnings growth also comes under pressure as a result of increasing financing costs.
Foolish takeaway
The prospect of a second Sydney airport has huge implications for Sydney Airport, and although I believe the company remains a high quality prospect, the latest developments raise some interesting questions for investors.
