Auckland Airport is returning $454 million in capital to shareholders as it restructures its balance sheet by taking on more debt.
The Auckland City Council will receive about $100 million from the capital distribution.
Craigs Investment Partners broker Greg Easton said the company felt its debt-to-equity ratio was out of kilter, in effect giving it a ''lazy balance sheet''.
The announcement yesterday was positive news for the share price, which rose to $3.50 from $3.43 immediately. The shares last traded at $3.47.
''We are talking finance 101 here. Auckland Airport believes debt is a cheaper form of capital than equity.
"Their balance sheet is strong and now the capital will have to work hard because there is less of it.''
The company had adopted ''enterprise value'' as determining its debt level, Mr Easton said.
That meant using the market valuation of the company - the share price versus shares on issue - which was at the whim of all sorts of things.
Using the enterprise value, debt rose from 20% of the company's value to 28% which would have ''quite an impact'', he said.
Rating agencies would continue to look at the debt-to-cash-flow ratio. In comparison, Sydney Airport had a debt-to-enterprise value of 46%, he said.
Auckland Airport had 1.323 million shares on offer yesterday.
After the payout, shares would reduce to 1.19 million. Market capitalisation would reduce from $4.5 million to $4.08 million.
The payout to shareholders would not have been possible in 2008 to 2010.
Then, the Canadian Pension Plan and a Dubai syndicate wanted to buy the airport company and increase its debt.
Former finance minister Sir Michael Cullen, and shareholding ministers, ruled against the sale to overseas interests.
Mr Easton said the airport's strategy came with its own risk but the company was clearly confident of its future. Being able to borrow at 5% or 6% meant it was able to return the capital.
Auckland Airport chairman Sir Henry van der Heyden said to be efficient, the company needed to manage its operating costs, its capital and have an efficient mixture of equity and debt.
''The company's strong performance over the past five years, including our successful property development and retail businesses and our investments in other airports, means we currently have a less efficient mix of equity and debt than we had in the past.''
The company was committed to providing critical airport infrastructure for New Zealand and was investing in an important domestic terminal upgrade.
Auckland Airport would seek court and shareholder approval to cancel one in 10 of its shares.
The sum each shareholder received per share cancelled would be $3.43, about equal the closing share price immediately before the announcement.
Sir Henry said the return of capital would not alter proportionate shareholding or shareholders' proportionate voting and distribution rights.
A portion of the capital returned to shareholders would be treated as a dividend for tax purposes and receive imputation credits.
No interim dividend would be paid for the 2014 financial year.
Auckland Airport's A-minus rating with Standard and Poor's was the highest for any airport in Australasia, alongside Melbourne Airport.
At a glance
- $454 million total cash payments to shareholders in mid-April 2014.
- Cancellation of one in 10 shares, with payment of $3.43 for each share cancelled.
- High Court approval expected in March.
- 40% of payment as capital return for tax purposes with the remaining 60% treated as a taxable dividend which would not be fully imputed.
