Airport shares nosedive after intervention

More than $300 million was wiped off Auckland International Airport's market value after the Government introduced a late rule change making it more difficult for overseas interests to take major stakes in strategically important New Zealand assets.

After falling by up to 48 cents, or nearly 20 per cent, in morning trading, the airport's share price closed down 24c on $2.24.

The move targeted the Canada Pension Plan Investment Board's bid for 40 per cent of the airport. The bid closes on March 13.

While the rule change appears to make government approval of the bid unlikely, CPPIB said it was continuing with its offer and, from today, would run advertisements in newspapers encouraging shareholders to support the bid.

Auckland International Airport chairman Tony Frankham denied the board, most of whom oppose the CPPIB bid, had lobbied the Government for the rule change.

The change will limit the ability of the airport to attract another overseas investor if the CPPIB offer is rejected.

"It constrains the opportunities that we might have to attract partners that might bring in tourism, aeronautical or route-building expertise," Mr Frankham said. "At the same time, the stapled security restructuring option has been shut down, so it's got to have an impact on our ability to find an offshore partner."

The rule change, announced by Finance Minister Michael Cullen late on Monday, introduces a new regulation under the Overseas Investment Act that Associate Finance Minister Clayton Cosgrove and Land Information Minister David Parker must take into account when deciding whether to approve CPPIB taking a 40 per cent stake in the airport. In addition to other criteria, the ministers will now need to consider: "whether the overseas investment will, or is likely to, assist New Zealand to maintain New Zealand control of strategically important infrastructure on sensitive land".

Their decision would be subject to judicial review.

Assuming CPPIB's bid is successful, its decision is likely to hinge on whether a 40 per cent stake is a controlling stake.

"It's a bid for 40 per cent - that would give effective control," Dr Cullen said.

But CPPIB head of infrastructure Graeme Bevans said that the fact it was only a 40 per cent stake, in combination with the fund's pledge to restrict its ability to vote on appointing or removing directors, meant the bid could still be approved by the two ministers.

Chapman Tripp senior corporate partner and merger and acquisitions specialist Barry Brown said the new regulation was not necessarily a death knell.

"The criteria is not whether overseas investment would result in the loss of New Zealand control, it's whether it's likely to assist New Zealand to maintain New Zealand control. If it was simply a blocking mechanism you would have worded it differently."

The wording might allow the Government to approve the bid, but with conditions.

What happened?

Michael Cullen tightens up overseas investment criteria in response to a bid by the Canada Pension Plan Investment Board for a 40 per cent stake in Auckland International Airport.

The new regulation had been put in place to protect a narrow range of New Zealand's strategic assets and does not need to be approved by Parliament.

The regulation will also apply to major ports, though most are already locally controlled

Who decides what?

A new regulation under the Overseas Investment Act means ministers will have to take into account whether the investment will, or is likely to help, keep New Zealand control "of strategically important infrastructure on sensitive land".

How much do the Canadians control?

CPPIB has acceptances for 13.34 per cent of AIA shares, on top of the 0.78 per cent it already owns.

No backing down

CPPIB confirms it is continuing with its partial takeover offer for AIA shares.

"CPPIB's intention has always been to be a long-term minority shareholder without a controlling interest," said CPPIB's vice-president head of infrastructure, Graeme Bevans.