Inchon Airport Capitalization
The South Korean government is looking to carry out initial public offerings of public agencies for the first time in six years. Under the circumstances, the likelihood of the IPO of the Incheon International Airport Corporation (IIAC) is drawing the attention of investors.
The IIAC recorded 797.8 billion won in operating profits in 2012 and the amount rose to 814.5 billion won (US$708.2 million) and 887.3 billion won (US$771.5 million) in 2013 and 2014, respectively. It reached 1.0449 trillion won (US$908.6 million) last year.
Industry insiders are expecting that the IPO of the IIAC can be highly profitable as it has a variety of favorable conditions such as the completion of the second passenger terminal of the Incheon International Airport scheduled for 2017. Once the new passenger terminal is opened, the airport’s passenger handling capacity increases from 54 million persons to 72 million persons a year and its annual cargo handling capacity jumps from 4.5 million tons to 5.8 million tons.
The government is predicting that its share sale will result in a value assessment equivalent to 30 times the corporation’s EBITDA as in the case of the Beijing Capital International Airport. As of the end of last year, the IIAC’s EBITDA amounted to 1.2966 trillion won (US$1.12 billion) and its market capitalization after the IPO can reach 39 trillion won (US$33.91 billion) or so by the government’s calculation. This amount is similar to that of the Korea Electric Power Corporation (KEPCO), 38.45 trillion won (US$33.43 billion), which has the second-largest market cap in the South Korean stock market. The government can obtain more than 10 trillion won (US$8.69 billion) even if it sells less than half of the shares of the state-owned corporation.
The listing procedure to be applied to the IIAC is pretty simple, too. The Korea Exchange is currently providing a fast track for large corporations in the black and the review procedure for each of them can be completed within 20 days.
One potential obstacle is the public opinion against the IPO, which caused the IIAC to fail to be listed seven years ago. At that time, the political community was opposed to the IPO, claiming that the profitable blue-chip public agency should not be sold, and many people shared the same opinion out of concerns that the IPO would lead to a greater focus on profitability and higher fees and charges. The same pattern is likely to repeat itself at this time.