Asset sales loom as CK Infra bids $9.8bn for APA Group

The proposed divestment package – an attempt to satisfy FIRB and ACCC regulatory requirements – is not seen as including APA’s best assets.

A consortium led by Hong Kong-listed CK Infrastructure has made an unsolicited A$13 billion bid ($9.8 billion; €8.3 billion) for Australian gas pipeline company APA Group.

The price proposed by the consortium, which includes CK Asset Holdings and Power Assets Holdings, is equivalent to A$11 per share, representing a 33 percent premium to APA’s share price at Tuesday’s close. Based on the price, APA has invited the consortium to conduct due diligence, but did not make any recommendations to its shareholders at this time.

APA owns and operates 15,000 km of gas pipelines in Australia, connecting to 1.3 million homes and businesses and delivering about half of the country’s gas. The deal would be subject to approval by both the Foreign Investment Review Board and the Australian Competition and Consumer Commission, thanks to the fact that CK Infrastructure already has substantial holdings in Australia’s energy infrastructure.

APA said in a statement that CK Infrastructure has already had discussions with both FIRB and ACCC, and has proposed a divestment package which would include APA’s interests in the Goldfields Gas Pipeline, Parmelia Gas Pipeline and Mondarra Gas Storage Facility, located in Western Australia, as well as a stand-alone management team.

These assets are likely to appeal to Australian fund managers, although they are far from the best assets in APA’s portfolio, a market source told Infrastructure Investor. A FIRB review could potentially force the group to divest more attractive assets on the east coast as part of the deal, creating new opportunities for investors.

An ACCC spokeswoman said that it would commence a public review of the acquisition soon with an initial timeline of 12 weeks. She said: “As part of the ACCC’s public review we will investigate the impact the proposed acquisition will have on competition for gas transportation, and the impact on upstream and downstream gas markets. We will also be looking at the impact on competition for the construction of new pipelines in the future.”
FIRB declined to comment.

Big foreign investor
According to its website, CK Infrastructure is one of the biggest overseas infrastructure investors in Australia, with investments in electricity and gas distribution, gas transmission pipelines, electricity generation, as well as renewable energy power transmission businesses.

In 2016, it was knocked back by FIRB in a bid for NSW electricity distributor Ausgrid alongside China’s State Grid Corporation due to what treasurer Scott Morrison cited as “national security concerns”. It subsequently acquired the DUET Group, also through an unsolicited bid.

The DUET Group’s assets include stakes in United Energy, a company that supplies electricity in Victoria; Multinet Gas, a gas distribution company in Victoria; Dampier Bunbury Pipeline, a gas transmission pipeline connecting the Carnarvon/Browse Basins with Perth; and Energy Developments, an energy solutions provider. It also owns assets in the US, UK and Europe.

CK Asset Holdings lists the DUET Group on its website as one of its portfolio companies. According to a CK Asset Holdings spokesperson, “CK Infrastructure Holdings Limited is a subsidiary of CK Hutchison Holdings Limited; while CK Asset Holdings Limited is a separate listed entity.”

Power Assets Holdings, in which CK Infrastructure holds a 38.01 percent stake, is also active in Australia’s power sector. It currently holds a 27.93 percent interest in SA Power Networks, which according to the PAH website, is the sole electricity distributor in the state of South Australia.