Australian group Macquarie Airports proposes selling its entire stake in Japan Airport Terminal (JAT) back to JAT.

In the process it is taking a loss of about $20 million and a 22 per cent cut in its guidance for the distribution for 2009 which according to analysts, amounts to a substantial price for the extra cash involved in the transaction.

The plan to try and divest the 15-per cent stake in JAT in a buyback arrangement was disclosed in a statement to the Australian exchange ASX yesterday.

The buyback would be put up to shareholders for approval on 26 June according to the ASX filing.
 
"While we still expect JAT's strategy to bear fruit, the external environment has changed significantly since we made the investment and, given the size of our interest, we will not have the opportunity to apply our active management,'' Kerrie Mather, MAp's chief executive said in the statement.

If MAP's entire 15 per cent interest should be acquired at the tender offer price, MAp would expect to realise a maximum of about $260 million, a loss on book of around $20 million, as MAp explained in the statement.

"Should MAp's entire interest be acquired at the tender offer price, MAp would expect to realise a maximum amount of approximately A$260m including the benefit of hedging arrangements that were previously entered into, versus the A$280m at which the interest in JAT was recorded at 31 December 2008.

If that buyback would go according to plans Macquarie Airports will have cash in hand exceeding well beyond $750 million but at a cost of the sharp fall in distribution.

Analysts are questioning why if the company had 'over $100 million in cash and no debt problems for over two years why it was keen on selling the JAT stake and hurt investors.

The answer, they believe may be that raising the cash and cutting distribution, Map kills an important issue dead: the fact that distributions run ahead of actual proportionate earnings.

The company has followed a policy of trying to bring distributions (which were boosted by borrowings, like so many other infrastructure and property trust groups did) into like with actual earnings from the businesses being managed or invested in.

MAp said that since 2006 the company had a stated objective of converging proportionate earning and regular distribution. By 2008 proportionate earnings had swelled to 21.00c per stapled security which provided almost 80 per cent coverage of the distribution.

The company said that it remained confident that its airports would deliver a strong growth over the long term and that the policy of distributing 100 per cent sustainable earnings to security holders over time.