China buys stakes in key Australian power assets

Singapore Power logoThe world's biggest utility company by revenue, State Grid Corp of China (SGCC), which is also the world's seventh-largest company, is planning to buy stakes in Australian power assets worth billions of dollars, a move that will invite close scrutiny from the country's regulator.

Beijing-based state-owned State Grid yesterday said that it will acquire stakes in SPI (Australia) Assets (SPIAA) owned by Singapore Power Ltd, which includes electricity and gas networks that supply to Australia's two largest cities.

Singapore Power is fully owned by the country's sovereign wealth fund Temasek Holdings.

State Grid, whose annual revenue is around $300 billion, has offered to buy 60 per cent of SPIAA's unlisted utility firm Jemena's entire business for an undisclosed sum and 19.9 per cent of listed SP AusNet from Singapore Power for $824 million.

The proposed deal, which has been approved by the board of Singapore Power, will make SGCC one of the biggest energy infrastructure investors in Australia.

Last year, State Grid had acquired a 41-per cent stake in South Australian high-voltage power transmission network company ElectraNet from the Queensland government-owned Powerlink, $500 million.

SPIAA owns and maintains electricity distribution, gas distribution and transmission assets, including wholly-owned regulated assets – an electricity distribution network serving over 300,000 customers in north-west Melbourne, Victoria and a gas distribution network serving over 1 million customers in Sydney, New South Wales.

It also holds 50-per cent stake in the electricity and gas distribution networks in the Australian Capital Territory and 34 per cent of United Energy Distribution, an electricity distribution business serving the south-eastern suburbs of Melbourne, and wholly owns unregulated assets gas transmission pipelines in Victoria, New South Wales and Queensland, a recycled water scheme in New South Wales; and utility infrastructure services provider, Zinfra.

Its unlisted asset - Jemena was formed as AlintaGas in 1995 and was listed on the Australian Stock Exchange in 2000. It was taken private in 2007 by a consortium including Babcock & Brown funds for A$13.9 billion, beating out a rival bid by Macquarie Bank.

Post acquisition, the Alinta businesses were split up and majority of its eastern assets were owned by its subsidiary, which changed its name to Jemena in 2008. Later the company came to be wholly acquired by Singapore Power and changed its name to SPI (Australia) Assets Pty Ltd, although it continues to use Jemena as a brand name.

Jemena manages more than $9 billion worth of Australian utilities assets by distributing electricity in Victoria to more than 300,000 homes and supplies gas to more than a million homes and businesses in New South Wales.

It also owns and operates more than $4.9 billion worth of gas transmission pipelines and associated facilities throughout Queensland, New South Wales, Victoria and Tasmania.

Although State Grid and Singapore Power did not disclose the financial terms of the Jemena deal, analysts have opined that SGCC would have paid around $2 billion based on the company's value of around $8 billion including debt.

ASX-listed SP AusNet is the largest diversified energy operator in Victoria, owning and operating more than $10 billion of electricity and gas distribution assets, including the state-wide electricity transmission network.

The company also has a non-regulated division, Select Solutions, providing a range of energy, water and environmental services to the utilities industry. Headquartered in Melbourne, Australia, SP AusNet employs more than 1,900 people to service 1.3 million customers.

Singapore Power will continue to hold a 31.1 per cent stake in SP AusNet, which would remain publicly listed and will remain the operator of the assets.

Commenting on the deals, Singapore Power CEO, Wong Kim Yin, said, "We are very proud of what we have achieved in Australia through our investments in SP AusNet and SPIAA. SP looks forward to the next stage of growth in these entities. I am confident that with the support of SGCC and SP, both SP AusNet and SPIAA businesses will be further enhanced.

''These transactions also recognise the astute leadership and solid performance of the management and employees of SP AusNet and SPIAA, as well as the strength of the Australian energy infrastructure sector."

SPIAA's net profit for the year ended March 2012 was A$191 million on sales of A$1.7 billion. The company's assets are valued at around A$5 billion.

On completion of the deal, Singapore Power's stake in SP AusNet will come down to 31.1 per cent from 51 per cent, while in SPIAA it will retain 40 per cent.

State Grid's businesses include investment, construction and operation of power transmission networks.

Its activities are spread over about 90 per cent of Chinese territory. With its vast experience, the company is considered a world leader in ultra high-voltage technology and smart grids.

In recent years, State Grid has been expanding its power transmission business overseas by acquiring assets in Australia, Brazil, Portugal and the Philippines.

Co-chairman of State Grid's international co-operation department Chen Mengrong said, ''The return on investment and the regulatory system of the local market are key factors State Grid considers when evaluating overseas investment opportunities.''

Chen added that State Grid had no plans to make significant changes to the operational or managerial model of either SP AusNet or SPIAA, and SP AusNet would continue as a listed entity.

The deal has to be approved by the Australian foreign investment board as well as Chinese regulators.

Although some analysts say that the deal could be torpedoed by the Australian regulator, others aver that it may not pose a serious problem since the stake is being passed on from one state-owned company to another.