Queensland election loss bad news for Spark Infrastructure
With Saturday's election loss, Queensland's power assets are no longer for sale. That's good news for NSW taxpayers, but bad news for Spark Infrastructure.
After just three years in office, Queensland Premier Campbell Newman was unceremoniously booted out on Saturday night and, with him, plans for the largest sale of electricity assets in Australia's history.
That's good news for New South Wales taxpayers. The NSW state government plans to raise more than $15bn by privatising its electricity transmission network, TransGrid, as well as selling 50% stakes in energy retailers Ausgrid and Endeavour Energy.
With the Queensland assets no longer for sale, there's now plenty of foreign capital chasing fewer opportunities. And with yesterday's decision by the Reserve Bank to cut interest rates to their lowest level since 1968, the NSW electricity assets should have no trouble finding a buyer at a decent price.
However, the sheer size of the NSW network means there are only so many potential suitors with deep enough pockets, so the networks are likely to go to a consortium of international pension funds, Middle Eastern sovereign wealth funds or State Grid Corp of China, the world's biggest utility.
Spark Infrastructure (ASX: SKI) has also expressed its interest and will possibly team up with an Australian or Canadian super fund.
Spark is facing fewer opportunities to grow its regulated asset base due to a crackdown on 'gold plating' and the increasing popularity of solar power reducing peak demand – the few times in a year that contribute almost all of a network's profit. This makes the prospect of growth by acquisition even more enticing for the company, which also had plans to bid for the Queensland electricity assets.
But management's eagerness to expand and diversify only makes sense at the right price – and given its aggressive bidding for the Sydney Desalination Plant in 2012, which would have been disastrous for shareholders had they actually won, we approach with caution.
Furthermore, listed networks like Spark, AusNet (ASX: AST) and DUET (ASX: DUE) are all trading at more than 30% premiums to their regulated asset bases (what the regulator considers a network to be worth). With this as a backdrop, the NSW assets won't be going cheap, especially given the added competition now that the Queensland assets are off the table. That's great news for NSW taxpayers, but bad news for Spark shareholders.