China makes $3b power play for energy network
Hard on the heels of its $500 million-plus purchase of a large stake in the power network in South Australia, China's State Grid has paid more than an estimated $3 billion for control of the main gas network in much of eastern Australia along with a one-fifth interest in SP AusNet.
The move paves the way for it to gain full control of SP AusNet, which operates electricity and gas networks in Victoria, along with the balance of the Jemena gas distribution assets in NSW and Queensland.
State Grid has agreed to pay $824 million for 19.9 per cent of SP AusNet, leaving Singapore Power with 31.10 per cent.
It also bought a 60 per cent stake in Jemena for more than $2 billion. Jemena has assets valued at $9 billion and substantial borrowings. The purchase gives State Grid control of the Eastern Gas Pipeline, which links Bass Strait with Sydney and the Queensland Gas Pipeline that runs from Roma to Gladstone and Rockhampton, along with other assets, such as half of the ACT's energy supplier and recycled water assets in Sydney.
The transaction is subject to Australian government approval, although since it involves the transfer of equity between two foreign entities, both of which are government controlled - State Grid by Beijing and Singapore Power by the Singapore government, via Temasek - this is expected to be straightforward.
State Grid bought a 41.1 per cent stake in South Australia's ElectraNet last year.
It has a target of having 20 per cent of its assets outside of China by 2020. It already has investments in Portugal, Brazil and the Philippines, after missing out on buying part of the New Zealand grid in 2008, which was sold to Hong Kong's Cheung Kong Infrastructure.
State Grid said existing management arrangements would remain in place, although since Singapore Power receives a range of fees from both SP AusNet and the Jemena entities, these are expected to be unravelled over time.
This includes payment by SP AusNet of 1 per cent of its gross profit as measured by earnings before interest, tax, depreciation and amortisation, along with a similar fee for capital spending and payments based on the size of the asset base. With Jemena, $5.2 billion of its borrowings are from Singapore Power, which also receives management fees.
No "significant changes" to either the operations or management of the assets acquired was planned, it said.
"For their respective management and employees, it will be business as usual," it said, with SP AusNet to remain a listed entity.
The most recent pipeline transaction was $423 million paid for the Moomba to Adelaide pipeline by Queensland Investment Corp.