Spark of interest in Aussie poles and wires sale

Sydney-based listed infrastructure firm Spark Infrastructure has declared its hand in the race for electricity assets, which is tipped to exceed price expectations.

Spark Infrastructure has announced that it is an interested party in the upcoming sales of electricity assets – colloquially referred to as “poles and wires” – in New South Wales (NSW).

The Sydney Morning Herald reported that at a shareholder meeting at the end of last week, Spark confirmed rumours of its interest in three businesses to be sold and also said that it had joined forces with Melbourne-based fund manager Hastings Funds Management, the Abu Dhabi Investment Authority, Canada’s Caisse de depot et placement du Quebec and Wren House, which is part of the Kuwait Investment Authority.

Spark is a specialist infrastructure fund focused on regulated utility infrastructure within Australia and overseas. Its portfolio includes 49 percent stakes in SA Power Networks in South Australia and in CitiPower and Powercor in Victoria.

The planned privatisation involves three assets to be sold under 99-year leases: 100 percent of transmission grid owner Transgrid; and 50.4 percent stakes in distributors Ausgrid and Endeavour Energy. The privatisation has proved controversial and is currently the subject of a parliamentary inquiry which is due to conclude on June 2nd. The sale process is expected to proceed shortly after that.

A recent report from lobbying group Infrastructure Partnerships Australia (IPA) indicated that the sales are likely to raise A$3.5 billion (€2.5 billion; $2.7 billion) more than expected and will boost NSW’s pool of money for new infrastructure to A$23.5 billion (the sales are part of an asset recycling scheme, which will see money raised reinvested in greenfield initiatives).

Looking at recent similar transactions, IPA found an average sale price of 1.35 times regulated asset base (RAB). Applied to the NSW lease sales, this would result in A$15.4 billion in net lease proceeds, A$5 billion in interest from the allocation of lease proceeds into the Restart NSW fund, and A$3.1 billion in Commonwealth reward payments.

“Our latest analysis shows that NSW can expect an additional A$3.5 billion bonus from the poles and wires, with recent similar transactions showing a higher average price,” said IPA chief executive Brendan Lyon in a statement.

IPA identified a number of factors driving a high price: the global scale of the businesses being sold; very low interest rates; scarcity of stable, regulated assets; and the axing of Queensland’s planned A$37 billion asset recycling plan (with investors interested in that sell-off switching their attention to NSW).