Global group wins $10.3 billion bid for Aussie power assets

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(Bloomberg) -- Investors from Canada and the Middle East are part of a group that agreed to pay about A$10.3 billion ($7.5 billion) for an electricity network in Australia’s most- populous state, beating rival offers from companies including State Grid Corp. of China.

The successful bidders for TransGrid, the New South Wales state transmission business, are Caisse de Depot et Placement du Quebec, Abu Dhabi Investment Authority, Kuwait Investment Authority, Hastings Funds Management Ltd. and Spark Infrastructure Group, the government said on Wednesday.

Foreign acquisitions of Australian companies have almost doubled this year and competition for ports, power grids and desalination plants is intensifying as bidders are drawn to the country’s relative stability and almost quarter-century of economic growth. The deal is part of state Premier Mike Baird’s plan to raise A$20 billion for new railways, roads, schools and hospitals and comes at a time when foreign ownership of Australian infrastructure is in the spotlight.

“What this bid represents is the United Nations,” Baird, a former Deutsche Bank AG banker, told reporters in Sydney, adding that the deal signals that NSW is open to overseas investment. “This reflects what a global market is all about.”

Overseas purchases of Australian firms announced this year have jumped to A$72.5 billion compared to A$39.4 billion in all of 2014, according to data compiled by Bloomberg.

Ausgrid Lease

The state government also plans to offer leases to 50.4 percent of power distributors Ausgrid and Endeavour Energy. The government expects the transaction for Ausgrid to be completed by mid-2016, according to Wednesday’s statement.

The Quebec pension fund is the largest holder in the group, with about 25 percent, while Hastings and the Abu Dhabi and Kuwait investors each have a stake of about 20 percent. Spark holds about 15 percent, according to the government.

“We think this is a very good fit to the objective of our infrastructure portfolio -- quality asset, quality partners -- and we expect it to deliver stable, predictable, regulated returns,” Macky Tall, senior vice-president of infrastructure investments at the Canadian fund, said in an interview.

Bank Loans

The winning group will borrow about A$5.5 billion to A$6 billion from around 10 banks through a combination of bridge financing, bonds and bank loans, people with knowledge of the matter said. The banks include Australia & New Zealand Banking Group Ltd., Commonwealth Bank of Australia, DBS Group Holdings Ltd., United Overseas Bank Ltd. and Westpac Banking Corp., according to the people, who asked not to be identified discussing private information.

State Grid Corp. of China, the nation’s largest power distributor, had teamed with Macquarie Group Ltd.’s Infrastructure & Real Assets Fund to make a binding bid, people with knowledge of the matter said earlier this week. AustralianSuper also submitted an offer with Canada Pension Plan Investment Board and Borealis Infrastructure Management Inc., the people said. Baird said that every bid was approved by “all authorities and all agencies.”

“This was an incredibly tight race,” said Baird, who won a mandate for the sell-off after being returned in an election earlier this year.

The government considered price, as well as “risk” and the “terms and conditions” of the bids, he said. The Hastings group’s offer for the 99-year lease of TransGrid was “clearly the strongest,” he said.

Predictable Returns

Australia is reviewing rules for selling state-owned infrastructure to foreigners after the Obama administration raised concerns that Chinese investors had bought a port in the northern city of Darwin where U.S. Marines are based. Federal Treasurer Scott Morrison last week blocked the sale of the nation’s largest landowner to an overseas buyer, while the federal government has increased scrutiny of foreign acquisitions of agricultural land.

The federal government is seeking to boost growth through infrastructure investment and is encouraging states to sell off assets to fund new projects. While Baird gained a mandate for the electricity sell-off, the asset recycling program has suffered from political backflips and a backlash from voters in other states.

The Liberal National Party in Queensland state was ousted after just one term in office earlier this year amid opposition to its plan to sell electricity grids, power stations and ports. The new Labor government subsequently scrapped the sales. In Victoria state, the Labor government elected late last year has reneged on its predecessor’s plans to build a Melbourne toll road known as the East-West Link.

The joint financial advisers to the NSW government on the electricity network transactions are Deutsche Bank and UBS AG, according to the statement. RBC Capital Markets and JPMorgan Chase & Co. were advisers to the Hastings-Spark group.

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