Australia set to block China’s CK Infra from APA Group takeover

Treasurer Josh Frydenberg said the move should not be seen as an ‘adverse reflection’ on CK Group and that Australia still welcomes foreign investment that is not ‘contrary to our national interest’.

The Australian government has announced its intention to block the takeover of gas pipeline giant APA Group by a consortium led by China’s CK Infrastructure because it would be “contrary to the national interest”.

Federal government treasurer Josh Frydenberg said in a statement that it was his “preliminary view” the takeover should not proceed because it would “result in an undue concentration of foreign ownership by a single company group in our most significant gas transmission business”.

APA Group accepted an unsolicited A$13 billion ($9.5 billion; €8.3 billion) takeover offer from the CK consortium in August, which would have seen APA shareholders receive A$11 per share. Hong Kong-listed CK Infrastructure Holdings is leading the consortium, with support from CK Asset Holdings, a separate listed entity, and Power Asset Holdings, in which CKI holds a 38.01 percent stake.

The takeover was approved by the Australian Competition and Consumer Commission in September, subject to the divestment of several assets in Western Australia including the Parmelia Gas Pipeline and the Goldfields Gas Pipeline.

APA is “by far” the largest gas transmission system owner in Australia, Frydenberg said, owning more than 15,000 kilometres of pipelines that represents 56 percent of Australia’s gas pipeline transmission system. APA’s assets include 74 percent of pipelines in New South Wales and Victoria, and 64 percent of pipelines in the Northern Territory.

An Australian-led bid may yet emerge for APA Group, but market sources have indicated to Infrastructure Investor that it would almost certainly be lower than the A$11 per share being offered by the CK consortium. IFM Investors has been touted as a likely leader or major participant should an Australian consortium now emerge.

CK Infrastructure could come back to the table with an Australian partner, but one source viewed this as unlikely.

It is the concentration of ownership of Australia’s east coast gas pipeline assets, though, that has triggered concerns from the Foreign Investment Review Board, which failed to reach a unanimous recommendation on the takeover, Frydenberg said. The takeover was also the first deal to be examined by the newly created Critical Infrastructure Centre, which works alongside FIRB to develop national security risk assessments to aid decision-making.

Frydenberg said his preliminary view took into account a “whole-of-government assessment” on the bid and was made in close consultation with FIRB and CIC. He will make a final decision under the formal foreign investment review process within the next two weeks, which is expected to follow his preliminary view.

The treasurer attempted to assuage concerns about foreign investment into the country more generally, saying: “The government remains committed to foreign investment into Australia. We continue to welcome any foreign investment that is not considered contrary to our national interest.”

Frydenberg added that his preliminary view should not be seen as an “adverse reflection” on CK Group or the other consortium companies and that he welcomed the company’s existing investments in Australia and ongoing contribution to the economy. Rather, he said, the decision reflects the “size and significance” of APA Group.

APA Group declined to comment, while a CK Group spokesman said, the CK Group “notes” the points raised by the government.

CK Infrastructure was previously part of another bid for Australian infrastructure assets that was blocked by the federal government over national security concerns. In 2016, then-treasurer Scott Morrison, now prime minister, shut off a joint bid from CK and China State Grid Corporation for NSW electricity distributor Ausgrid. CK subsequently acquired the DUET Group through an unsolicited bid.

The latest blocked bid may have implications for relations between Australia and China, with Australian foreign minister Marise Payne meeting Chinese foreign minister Wang Yi today after a period of frosty relations. Australia and Hong Kong are also in the process of negotiating a trade deal.

The Australian federal government earlier this year blocked Chinese telecommunications giant Huawei from building part of its new 5G network due to national security concerns.