Foreign Bids for Australian Power Grid Test Government Resolve

  • China's State Grid among foreign bidders for TransGrid asset
  • Australia, criticized for Darwin Port lease, stopped farm sale

Foreign investors are in three of the four groups bidding for a A$9 billion ($6.5 billion) electricity network in Australia’s biggest state economy, underscoring the balancing act facing governments trying to get top price for assets amid mounting concerns about overseas ownership of vital infrastructure.

State Grid Corp. of China, the nation’s largest power distributor, teamed with Macquarie Group Ltd.’s Infrastructure & Real Assets Fund to make a binding bid for New South Wales power-transmission company TransGrid, according to people with knowledge of the matter. AustralianSuper submitted an offer with Canada Pension Plan Investment Board and Borealis Infrastructure Management Inc., while another bid led by Hastings Funds Management Ltd. and Spark Infrastructure Group has backing from Canada, Abu Dhabi and Kuwait, the people said. Treasurer Scott Morrison said Monday that all groups had been cleared by the Australian government’s approval process.

Overseas investment is in the spotlight after President Barack Obama’s administration raised concerns that Chinese investors had bought a port in the northern city of Darwin where U.S. Marines are based. 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. 

“You can expect that any time we’re talking Australian farms, agribusinesses, ports or electricity, it’s going to blow up,” James Laurenceson, a professor at the Australia-China Relations Institute at the University of Technology, Sydney, said by phone from Beijing. “This is a very important issue for the Australian government because it’s not going away.”

Raising Funds

Competition for Australian assets, including ports, power grids and desalination plants, from offshore players is intensifying as bidders are drawn to the nation’s relative stability and almost quarter-century of economic growth. Newcastle Port was sold to a consortium including China Merchants Group Ltd. last year for A$1.75 billion while two foreign-backed groups are competing to buy rail and port operator Asciano Ltd. valued at about A$9 billion. Foreign acquisitions of Australian companies 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.

New South Wales, Australia’s most populous state, plans to raise about A$20 billion from selling leases to operate TransGrid and stakes in two energy-distribution companies to fund new railways, roads, schools and hospitals. Premier Mike Baird, a former banker at Deutsche Bank AG, won a mandate for the selloff after being returned in a state election earlier this year.

Ausgrid, Endeavour

The state government will evaluate the bids for TransGrid after receiving binding offers on Monday, according to a statement from state Treasurer Gladys Berejiklian. A spokesman for Berejiklian declined to comment on the identity of the bidders.

A group consisting of Australia’s IFM Investors Pty and investment fund QIC Ltd. also bid by Monday’s deadline, the people said.

Hastings and Spark’s group is backed by the Abu Dhabi Investment Authority, Canada’s Caisse de Depot et Placement du Quebec and Wren House, an arm of the Kuwait Investment Authority, the people said.

The sale of the electricity networks would follow at least A$9 billion of asset sales by Baird’s government, including leases to Port Botany and Port Kembla and a water desalination plant.

The New South Wales government last year appointed Deutsche Bank and UBS Group AG as advisers to lease TransGrid, which manages one of Australia’s largest electricity transmission networks. It also plans to sell similar leases on 50.4 percent of two of the state’s power distribution companies, Ausgrid and Endeavour Energy.

The state will start to invite interest in Ausgrid on Tuesday.

Morrison last week blocked the sale of S. Kidman & Co.’s properties to an overseas buyer, saying the location of one of the company’s 10 cattle ranches in a weapons testing area could compromise national security. China’s Shanghai Pengxin Group and Hong Kong-based investment firm Genius Link Asset Management bid for the business, a person with knowledge of the matter said Nov. 19.

“We’re only just at the start of China’s overseas investment stage of development,” Laurenceson said. “So this issue of Chinese investment in Australia is far closer to the beginning than the end.”

Before it's here, it's on the Bloomberg Terminal.