Australia Blocks Bids for Ausgrid, Triggering Warning From China

  • Treasurer says sale in current form against national interest
  • China’s State Grid, CKI sought to buy electricity network

Australia upheld its decision to block foreign bidders from buying a majority stake in state-owned power network Ausgrid for more than A$10 billion ($7.6 billion), triggering a warning from China that the move will hurt bilateral ties.

The deal would go against the national interest, Australian Treasurer Scott Morrison said in a statement on Friday, confirming last week’s preliminary ruling that scuppered efforts by government-controlled State Grid Corp. of China from buying 50.4 percent of the electricity distributor. Hong Kong billionaire Li Ka-shing’s Cheung Kong Infrastructure Holdings Ltd. was also rejected.

Within minutes of the announcement, China’s Commerce Ministry said the ruling will “severely” reduce the appetite for Chinese companies to invest in Australia. CKI reiterated comments from last week, saying that Australia made a decision based on "reasons beyond the obvious" that were unrelated to the company. State Grid didn’t respond to requests for comment.

For Australia, the move risks souring relations with its biggest trade partner, which has accused the government in Canberra of protectionism. It is also a blow to the New South Wales state government, which has spent months negotiating the sale of Ausgrid and may not be able to command the same price tag now foreigners are blocked for taking a controlling stake.

“In making this decision, national interest concerns have been paramount,” Morrison said in an e-mailed statement. “We will continue to work closely with New South Wales to ensure that national security requirements are met under any future transaction process.”

New South Wales Premier Mike Baird said the state government will “move immediately to relaunch the transaction process” and believes market interest in the asset is strong.

Trade Ties

Chinese Commerce Ministry spokesman Sun Jiwen said in a statement Friday the decision reflects the uncertainty of the investment environment in Australia. China’s infrastructure investors have had a tough few weeks, with the U.K. government reconsidering a plan to build a nuclear-power facility with Chinese backing.

CKI said it is considering its options, reiterating comments from last week, when it noted it had a 25-year track record of managing infrastructure assets including electricity and gas networks in the U.K., Australia and New Zealand.

Morrison’s announcement comes as Australia balances the need for foreign investment to drive economic growth against mounting public opposition to sales of farmland, real estate and strategic infrastructure, particularly to Chinese investors.

Spy Chief

Despite overseas capital being vital to Australia’s future expansion, the government is arguably making it harder for foreigners to invest. Last year, it tightened scrutiny of sales of farmland to Chinese, Japanese and Korean buyers. The government board that vets investments now includes a former spy chief.

The prospects for Chinese suitors haven’t improved since the July 2 election saw a swag of protectionist independent or minor party lawmakers elected to the upper house Senate. The National Party, the junior partner in Prime Minister Malcolm Turnbull’s coalition, which has been a vocal critic of investment by Chinese state-owned companies, also now has a bigger voice in the government.

Peter Jennings, executive director of the Australian Strategic Policy Institute, said he supported Morrison’s decision to bar foreigners from taking a majority stake in Ausgrid, which supplies power to 1.6 million homes and businesses in and around Sydney.

"It’s important that the government does take national security concerns seriously when it comes to foreign investment in critical infrastructure," Jennings said in a telephone interview.

He expressed concern, however, that the vetting process carried out by the government’s Foreign Investment Review Board lacks transparency and appeared ad hoc at times.

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