China State Grid’s European subsidiary, State Grid Europe, will not be able to take a 14 percent stake in Belgian grid operator Eandis after the deal failed to meet all the necessary conditions for its approval.
While the transaction, worth €830 million, had been accepted in June, this was conditional upon the four Walloon municipalities involved voting for the deal. However, they failed to all ratify it, meaning the required seven Flemish distribution system operators will no longer merge into a new company – Eandis Assets – in which China State Grid would buy a 14 percent stake.
Meanwhile, Flemish energy regulator VREG had expressed concerns there would be no change in rates, an additional condition for State Grid’s investment to be completed.
In addition to the preconditions not being met, the deal had been plagued by security concerns revolving around State Grid Europe’s involvement. At one point, Eandis was forced to issue a letter rebutting some of those concerns, highlighting that State Grid Europe’s 14 percent stake was unlikely to be used as a Trojan Horse for Chinese government interference.
The Eandis failure comes after China State Grid’s bid for the lease of Ausgrid, Australia’s largest electricity network, was blocked by the government, stating concerns over national security. This was followed by the UK government putting on hold Chinese investment in the Hinkley Point nuclear power plant, before deciding to proceed with rules for future foreign ownership in critical infrastructure.
However, China State Grid did recently agree a deal to take a 23.6 percent stake in CPFL, Brazil’s largest private power company.
Moody's placed Eandis's A1 ratings on review for downgrade after the failure of the deal, expressing concerns about the company’s balance sheet without a planned stake sale. An additional €100 million had been paid by the inter-municipal financing associations in July, capital likely to be paid back by Eandis, Moody’s said.
In a statement, Eandis maintained it “remains a financially sound and operationally strong company” and that it is “investigating all alternatives that can address the elements put forward by Moody’s”.