An Australian bank has factored an A$146 million letter of credit (L/C) facility into a mega-financing package used in the A$5.59 billion acquisition of Sydney Airports Corporation late last month.

Macquarie Bank's participation in Australia's largest ever state sell off - and the biggest airport sale in the world so far - has however drawn some criticism from media commentators who say the bank's fees in the acquisition are too steep.

Macqarie's role

Macqarie sponsored the winning Southern Cross Consortium bid. It provided advice to the consortium, it has arranged the equity base for the bid, helped arrange and underwrite (net underwriting exposure of A$200 million) the mezzanine funding for the bid, and provided L/C facilities totalling A$146 million to its in-house members of the consortium.

Direct equity investment in Sydney Airport has been made by a range of Macquarie Bank-managed funds, which together hold a 53 per cent shareholding in the asset, and by a range of local and international institutions. While Macquarie Bank does not have a direct equity stake in Sydney Airport, it is a 10 per cent stakeholder in the unlisted Macquarie Airports Group (MAG), which in turn has taken a 12 per cent interest in the asset.

FLIERS

Macquarie has also co-developed what it describes as an innovative new hybrid instrument. FLIERS (Floating Rate, IPO Exchangeable, Reset Securities) - developed by Macquarie Equity Capital Markets in association with UBS Warburg - forms part of the funding package for the acquisition and has an investment grade rating. FLIERS are a 10-year redeemable, convertible preference share paying a quarterly floating rate dividend.

Institutional and retail investors will have an opportunity to invest in FLIERS via an issue of units by the Southern Cross FLIERS Trust. Units in the Southern Cross FLIERS Trust will be offered to the public by Macquarie Specialised Asset Management Limited. A disclosure document for the units in the Southern Cross FLIERS Trust will be made available when the units are offered to the public.

Defence

Macqarie has been defending the fees it will potentially earn from the acquisition. It will generate net fees of at least A$50 million from its advisory and underwriting roles and add continuing management fees of at least A$12.5 million a year to its growing portfolio of specialist funds under management. The bank maintains it has based its fee structure on market rates.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.