Osaka Seeks to Lure Biggest Pension Fund to Airport Concessions

Osaka Seeks to Lure Biggest Pension Fund to Airport Concessions

New Kansai International Airport Co. is seeking to attract Japan’s state-run retirement fund to a sale of two airport concessions that could raise as much as 1.2 trillion yen ($12 billion).The Government Pension Investment Fund, the world’s largest pension fund 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 to 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 in a Dec. 9 interview in Osaka.

State-owned New Kansai plans an auction next year of operation rights to two airports in Osaka prefecture in western Japan, 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, people with knowledge of the matter said this week. Tomoyuki Hirao, a spokesman for GPIF, declined to 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.”

Debt Repayments

New Kansai operates Kansai International Airport, which opened in 1994 and sits on reclaimed land 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 about 1.2 trillion yen debt through the airport concession sales, Okada said.

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

Olympic Games

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 released yesterday by the Japan National Tourism Organization. The Japanese government has said it aims to boost the number to 18 million by 2016.

The 2020 Tokyo Olympic Games 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 Sale

Brazil last month sold the nation’s 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 reais ($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.

The Fukuoka Airport in the southwestern island of Kyushu and the Sendai Airport in northeastern Japan are also considering sales of airport concessions, people familiar with the matter said earlier.

To contact the reporters on this story: Shigeru Sato in Tokyo at ssato10@bloomberg.net; Emi Urabe in Tokyo at eurabe@bloomberg.net