Australia says ‘no’ to Ausgrid Chinese bidders

The New South Wales (NSW) government has preliminarily blocked bids from the only two suitors in the running – China’s State Grid and Hong Kong’s Cheung Kong Infrastructure – for the partial lease of Australia’s biggest electricity distribution network on the basis of national security concerns.

“Following careful consideration and consistent with the formal process required, I have today informed the bidders for the lease of 50.4 percent of Ausgrid […] that my preliminary view is that the foreign investment proposals put to me for this transaction are contrary to the national interest,” NSW Treasurer Scott Morrison stated in a release.

“In particular, during the review process national security issues were identified in critical power and communications services that Ausgrid provides to businesses and governments. I am, of course, open to consider what the bidders put to me, but at this stage no suitable mitigations have been identified that would, for the proposed transaction structure, appropriately address the identified risks,” he explained.

The two bidders now have until 18 August to re-submit their bids and assuage Morrison’s concerns. They were the sole interested parties in bidding for the 99-year lease, which could fetch as much as A$14 billion ($10.8 billion; €9.7 billion). Last November, a group led by Hastings Funds Management paid A$10.3 billion for the right to run Transgrid, valuing the network at 1.6 times its regulated base.

Chinese capital has been under increased scrutiny in Australia of late, particularly in NSW. In late April, Morrison blocked the A$371 million sale of Australia’s largest private property holder, S Kidman, to Chinese dairy giant Shanghai Pengxin, the second time it prevented a sale of S Kidman on national interest concerns, sister publication Agri Investor reported.

At least part of this scrutiny can be traced back to the controversial 99-year lease of the Northern Territory’s Port of Darwin to China’s Landbridge Group. Domestically, many believed the sale of a highly strategic asset to the Chinese was not in Australia’s best interest. But the Port of Darwin lease also ticked-off the US, a close ally of Australia’s, which was caught off guard by the sale.

Darwin happens to be a hub of military cooperation between the two countries. At the heart of domestic and international concerns is the Landbridge Group’s alleged close ties to the Chinese military. And to top it all off, the NT authorities have also come under fire after it emerged the port had been leased without full due diligence by Australia’s Foreign Investment Review Board.

Morrison, however, was at pains to stress that Australia is still very much open for business: “Foreign investment has underpinned the development of our nation and we must continue to attract the strong inflows of foreign capital that our economy requires. Without foreign capital and investment, Australia’s output, employment and standard of living would be lower. We will continue to welcome foreign investment that is not deemed contrary to our national interest.”