Chinese heavyweights target Ausgrid

The controlling stake in New South Wales’ largest electricity transmission business is expected to be worth more than A$10 billion.

One week before indicative bids are due, it is becoming increasingly clear that the privatisation of Ausgrid – New South Wales' (NSW) second electricity transmission network privatisation – will be a three-horse race.

Two Chinese state-owned utilities – State Grid Corporation of China and China Southern Power Grid Company – as well as Hong Kong-based Cheung Kong Infrastructure (CKI) are said to be the suitors for the long-term lease of a 50.4 percent stake in Ausgrid.

Ausgrid provides power to 1.7 million homes and businesses throughout Sydney, the Hunter and the Central Coast. 

It has been reported that the Qatar Investment Authority, the $250 billion sovereign wealth fund, is backing China Southern, alongside Chinese sovereign wealth fund China Investment Corporation.

State Grid, the world’s largest utility company, is believed to be the party with the greatest financial firepower, while CKI joins the battle with a track record as an efficient operator of south Australia power network ETSA Utilities and Victoria’s largest electricity distributor, Powercor. 

The three parties have started negotiations with the NSW government and its advisers, Deutsche Bank and UBS, about the so-called “golden vote”, according to local press reports. 

A Sydney-based analyst we spoke to commented that State Grid has been “extremely aggressive” in competing for the asset and this may be one of the factors that will put off other potential bidders. “Another factor is the challenge of working alongside the government on Ausgrid,” he said. 

Interest from bidders in quality assets like Ausgrid should be good, but not as high as for TransGrid, the first poles-and-wires business put on the market last November, the analyst said. That is partly because TransGrid was 100 percent privatised. 

The NSW government wants to make sure Ausgrid receives competitive bids. If it finds bids are not as high as expected, it might consider an initial public listing for Endeavour Energy, the third transmission asset in the NSW privatisation programme, the analyst added. 

It is understood that the Foreign Investment Review Board has granted permission for a foreign state-owned bidder to secure a controlling stake in Ausgrid.

The 50.4 percent stake in Ausgrid is expected to be worth over A$10 billion (€6.45 billion; $7.16 billion) and the transaction is expected to completed by mid-2016.The TransGrid auction valued the asset at A$10.3 billion. 

TransGrid's winning consortium, led by Australian fund manager Hastings Funds Management, is not seen as a likely contender for Ausgrid. Spark Infrastructure, a member of the TransGrid winning team, formally ruled itself out of the auction today, according to media reports.