How will Sydney Airport pay its bond interest

If airlines aren’t flying and Qantas (QAN.AX) announces extended grounding of its fleet, you cant be surprised that the stock price of debt laden Sydney Airport (SYD.AX) is falling.

In fact, I’d be a nervous debt holder.

How will SYD.AX service the interest coupons ?

Don’t worry, they’ll borrow more AGAIN to pay the interest (which it recently did in mid-April 2020 – see quote below) and the government will always stand to save such an important, strategic and unique asset.

Actually, come to think of it, it’s the equity holders which should be nervous as they rank below the holders of debt.

“Sydney Airport’s $850 million in new two- and three-year bank debt brings its liquidity to $2.8 billion which it said would “comfortably” cover the $1.3 billion in loan repayments it has to make in the next 12 months and up to $200 million of expected capital expenditure”

– quote source, Sydney Morning Herald, April 20, 2020

June 29, 2020
by Rob Zdravevski

How did Sydney Airport shareholders not see this coming?

Well, I got that wrong !
Only 6 weeks after I wrote this post, Sydney Airport didn’t choose to raise more debt to pay its interest coupon…..

even worse, it’s raising $2 billion in equity.

Debt is typically cheaper than equity in this current environment, but this tells me that Sydney Airport’s debt financing has dried up.

Worryingly,  with its growing debt burden, evaporated revenues and worsening equity valuations, the importance of this strategic asset will mean that government support will provide a perennial floor in the share price.

oh dear !

by Rob Zdravevski
11 August 2020



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