NSW govt sells Ausgrid stake to Australian super funds for $16bn

Print Friendly, PDF & Email

NSW says it has accepted an unsolicited offer from Australian Super and IFM investors to buy 50.4% of utility Ausgrid for just over $16bn.

share
Print Friendly, PDF & Email

The NSW government has offloaded half of state-owned utility Ausgrid, selling a 50.4 per cent share to a consortium of Australian pension funds for $16.189 billion.

NSW Premier Mike Baird and his Treasurer Gladys Berejiklian said on Thursday the decision had been made to accept the unsolicited offer, which was first proposed by Australian Super and IFM investors in late September.

powerlines-600x398

The successful “all-Australian” bid followed the federal government’s rejection, in August, of bids from two Chinese companies, based on concerns about national security.

As ITK analyst David Leitch noted at the time, this appeared to be a new concern for the federal government, considering both companies – Hong Kong’s Cheung Kong Infrastructure (CKI) and State Grid China (SGC) – already owned significant stakes in key Australian energy assets in a number of Australian states.

(Leitch also noted that “CKI’s Australian assets have been the most efficiently run in the NEM, as judged by the AER. We have never heard any criticism of its interests in regard to national security. Jemena was recently allowed to win, a very out of the money, bid to build a pipe to bring gas from the Northern Territory to Eastern Australia.”)

Reportedly, the Chinese companies reportedly $13 billion for the share in Ausgrid.

But, as Leitch also wrote in August, Ausgrid’s value was liable to “swing by billions of dollars” depending on the outcome of the AER’s appeal to the Federal Court against a ruling by the Australian Competition Tribunal over its determinations on 2014-2019 regulated revenues.

In comments today, Leitch said the price the government got from the Australian consortium was in line with where regulated utilities trade on the ASX and in line with ITK’s expectations.

“However in our view we are pleased to see the NSW government getting out ahead of the outcome of the full Federal Court appeal by the AER against the ACT review of Ausgrid charges. That appeal is being heard in Sydney this week,” he said.

“The NSW government gets $8.7 billion of equity and is also released from $7.3 billion of debt. It retains a 49.6 per cent stake in the asset which we think will be sold at a later date.”

Baird, meanwhile, thinks it’s a great deal, and says it will deliver $6 billion in net proceeds after the government pays off a $10 billion debt.

“We know the market better than anyone on the planet in terms of what these assets are worth,” Baird said. “We’ve obviously relied on expert advice but importantly an independent transactions committee oversees this and determines ‘is this market value?’

“Well the view is this is an outstanding bid for the people of this state.

“(It is) another excellent result for the people of NSW after our successful $10.258 billion lease of TransGrid,” he said.

“Our poles and wires transactions are unlocking billions of dollars to fund new schools, hospitals, public transport and roads that will make a real difference to peoples’ lives.”

Berejiklian said she was “delighted” with the deal, in light of IFM and AustralianSuper’s “demonstrated track record in the management and long term investment in infrastructure assets.”

Print Friendly, PDF & Email

11 Comments
  1. john 3 years ago

    The outcome of this is built in cost for the consumer going forward.
    Brilliant meanwhile in the long term they have purchase about 50% of a network that perhaps will not be able to find an ever increasing number of people to charge the cost to delivering a connection to so then they have a problem.

    • trackdaze 3 years ago

      Que the lobbying and donations to jack up the service fees and discourage distributed solar.

    • Brunel 3 years ago

      I thought Mike would keep 51% of the grid in government ownership.

  2. Alex Rogers 3 years ago

    Very interesting aspect to this is that the owners include my super fund (Australian Super) which is a member owned fund with a reputation for ethical behaviour. They will obviously run the business to make a profit – and with regulated returns it should be a very stable safe investment. (I personally think smart grid operators will always be able to make decent money, and there is a huge future for them in developing and running smarter grids). But I’m personally conflicted over this – I’m pleased on one hand to have a company that is not a rapacious profit-at-all-cost business owning Ausgrid – but would also like to see my super make good returns! Such is life in a world where 10% of our income is compulsorily invested in super…

    • Rod 3 years ago

      They do have an ethical investment option which has had OK past performance.
      Regulated assets have historically been a license to print money so this should be a good investment. It is the regulators role to find a fair return for investors.

      • Adam Smith 3 years ago

        Not sure why you are even discussing ethical investments in relation to Ausgrid, surely they are benign in that they just transport power. The ethical consideration would be on non renewable or other environmentally damaging activities. In relation to the regulator, don’t count on the AER to support fair returns! They already tried to smash the Utilities revenues, with NSW then challenging the determination in court and obtaining a more equitable determination. The AER is now proposing to eliminate a Utilities right to challenge the ruling, with Conboy saying she will determine what they get.

  3. Adam Smith 3 years ago

    It would appear that rumours of the imminent death of the Utilities is greatly exaggerated!

    • Giles 3 years ago

      In the same way, i suppose, that Peabody’s purchase of Macarthur coal for a record price disproved the theory that thermal coal was in decline, that the Fairfax and Murdoch investments in printing presses and other print media, disproved the arrival of the internet. etc. etc. The only thing that this proves is that it is inadvisable to get between a merchant banker and his fee.

      • Adam Smith 3 years ago

        Ah yes, but what does this say about Australian Super and IFM? The Investment bankers and Baird are no doubt pirates, however they only present the deal and the buyer also has a bunch of investment bankers who get paid whether the deal goes ahead or not. It says to me that there is still value in Utilities and as long term investors they would be looking beyond 10 years. Peabody mostly has met coal in Australia and is making a resurgence with the coal price. Fairfax and Murdoch seem to also be doing well and investing in digital media.

  4. MaxG 3 years ago

    The key issue is: NSW is selling its silver! Public utilities do not belong in private hands! No matter whose private hands they are.

  5. Coley 3 years ago

    Don’t know how Australian markets work but the Thatch flogged off our utilities to a bunch of home grown spivs, who then flogged off said utilities to all and sundry without any consideration as to security of supply, our own water supplier ‘Northumbrian water’ is now privately owned by some Chinese billionaire.
    And as to anyone who believes such ‘privatisations’ end up benefitting the consumer!! Whey another few weeks and you’ll be expecting a whiskery gent on a sleigh to come visiting.-:)

Comments are closed.

Get up to 3 quotes from pre-vetted solar (and battery) installers.