ADB Makes First Foray into PRC's Airport Business
MANILA, PHILIPPINES - The Asian Development Bank (ADB) is making its first foray into the airport business in the People’s Republic of China (PRC). The Proposed Equity Investment and Loan – Central and Western Airports Development Project – will involve a $50 million equity investment from ADB in HNA Airport Holding (Group) Co. Ltd., a private company primarily invested in airports and airport operations. ADB is coinvesting in HNA Airport Group with funds managed by Pacific Alliance: ARC Capital Holdings Ltd. and Pacific Alliance Asia Opportunity Fund Ltd. The investment will assist HNA Airport Group secure the confidence of international investors and attract more funds to continue expanding in the airport sector. While the company has already achieved significant success and has established a sound reputation in the industry, it is still at the onset of its planned expansion. The loan component of the project consists of two tranches. The first is a RMB1.2 billion loan from ADB, which will have risk participation from international commercial banks that will cover roughly half the loan amount. The risk participation will enable the participating international commercial banks, which currently do not have RMB funding capacity, to support a project that needs long-term RMB financing. The second tranche of the loan component consists of a $200 million B-loan. The project will support HNA Airport Group’s expansion and capital expenditure plan to privatize, rehabilitate, expand, upgrade and operate small- and medium-sized airports in the less developed central and western regions of the PRC. The project is also in line with the government’s Western Region Development Strategy, which seeks to promote economic development and reduce poverty in the central and western regions of the country. It will also ease financial constraints faced by provincial and municipal governments by mobilizing private sector funding for airport development. HNA Airport Group participates in the privatization of civil airports in the PRC, which will ultimately eliminate the need for subsidies now provided by local governments, freeing resources for other critical expenditures on items such as social benefit and health care. “Private sector participation accompanied by funding and experience is clearly needed in the development of the airport sector in the country, especially in the central and western regions,” said Sherwin Pu, investment specialist of ADB’s Private Sector Operations Department. Experienced foreign operators focus on large airports in the coastal region to create synergies with their existing operations and minimize investment risks. As a result, potential investors and operators of small- and medium-sized airports are likely to come from the domestic side of the industry. But local industry members are typically new with limited financial resources, and this constrains their capacity to develop a large number of projects. Priority needs to be given to qualified local investors, particularly in the central and western regions. “The country currently has the second largest civil aviation market in the world, after the U.S. The demand for travel, for both work and leisure, is projected to increase at an unprecedented pace due to increased labor movement flexibility and disposable income growth,” said Mr. Pu. The PRC’s air passenger transportation throughput, measured in revenue passenger-kilometers, will grow 8.4% annually during 2007-2026, while air cargo transportation turnover, measured in freight ton-kilometers, will increase at an annual rate of 10.5%. As of the end of 2006, the country had 146 civil airports in operation. The government’s 11th Five-Year Plan (2006-2010) requires the construction and expansion of some 60 airports, mostly in the western region. Some $17.7 billion in capital expenditure is needed for civil airports under the 11th Five-Year Plan. About ADB | 
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