CK Infra clears first hurdle for APA Group bid

The deal would see CKI sell a number of APA’s assets in Western Australia but is still subject to Foreign Investment Review Board approval.

The Australian Competition and Consumer Commission has approved the takeover of gas pipeline giant APA Group by a CK Infrastructure-led consortium, subject to it divesting several assets in Western Australia.

The acquisition would not alter APA’s pre-existing dominance in Australian gas transmission “in a material way”, the ACCC said, adding there was no competition between APA’s existing eastern Australian assets and those owned by CKI.

APA Group accepted an unsolicited A$13 billion ($9.2 billion; €8.0 billion) takeover offer in August, which will see APA shareholders receive A$11 per share. CK Infrastructure Holdings is leading the takeover consortium, with support from CK Asset Holdings, a separate listed entity, and Power Asset Holdings, in which CKI owns a 38.01 percent stake.

APA Group owns and operates approximately A$20 billion of energy infrastructure, including 15,148 km of transmission pipelines and 28,600 km of gas mains and pipelines. It also has interests in gas storage and processing, and gas-fired and renewable energy power generation businesses located across Australia.

CKI pledged to sell a string of APA’s gas assets in Western Australia as part of its purchase offer, including the Parmelia Gas Pipeline, the Goldfields Gas Pipeline, the Kalgoorlie to Kambalda Pipeline and the Mondarra gas storage facility. This undertaking has assuaged the ACCC’s concerns about gas transmission and storage facilities in WA, the competition watchdog said.

“The undertaking addresses these concerns and creates an opportunity for a new operator to acquire a valuable set of assets, together with the personnel needed to operate and manage the assets. This will create an operator similar in size to the CK consortium’s current operations in Western Australia,” ACCC chairman Rod Sims said.

CKI plans to divest assets in WA as a standalone business and the buyer will also require ACCC approval, with that review to focus on the purchaser’s ability to be “an effective and long-term competitor for the development of new pipelines,” Sims said.

Market observers had speculated that CKI could also be forced to divest some of APA’s more valuable eastern Australian assets, but the ACCC saw no competition concerns in that region.

The ACCC also examined the impact that vertical integration between CKI’s gas distribution assets and APA’s transmission assets (the high-capacity pipelines servicing major population centres and feeding gas into the distribution network), and found that any possible bundling or information sharing would not harm competition, partly because the gas distribution assets are regulated.

The transaction must now be approved by the Foreign Investment Review Board and the federal government’s newly-created Critical Infrastructure Centre, which works alongside FIRB to develop national security risk assessments to aid decision-making. The deal is the first to be examined by the CIC, according to Australian media reports.

FIRB approval remains a major hurdle and a refusal would not be unprecedented – new prime minister Scott Morrison blocked a joint bid from CK Infrastructure and China’s State Grid Corporation to take over New South Wales electricity distributor Ausgrid when he was treasurer in 2016 over national security concerns. CKI subsequently acquired the DUET Group, also through an unsolicited bid.

Market sources have indicated to Infrastructure Investor that a rival Australian-led bid, most likely involving IFM Investors, could be poised to step in should the deal be blocked by FIRB.

The Australian Treasury, on behalf of both FIRB and CIC, said it was unable to comment on the application of the foreign investment screening arrangements as they apply or could apply to particular cases.