People’s Daily blasts Li Ka-shing for Chinese divestment

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Spark-led consortium buys NSW’s TransGrid network

• THE AUSTRALIAN
  
  
• NOVEMBER 25, 2015 8:42AM
  
• Bridget Carter
  [Image: bridget_carter.png]
  Mergers and Acquisitions Editor
  Sydney
  
  Gretchen Friemann
  [Image: gretchen_friemann.png]
  Mergers & Acquisitions Editor
  Sydney
  
  

[img=650x0]http://cdn.newsapi.com.au/image/v1/8fbd3605244da481c79c41591f308fb5?width=650[/img]

TransGrid conducts aerial patrols of its power lines.

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Spark Infrastructure and its backers have nudged out State Grid and Macquarie to buy the NSW government’s electricity network TransGrid for more than $10 billion.

The consortium signed the deal with the NSW government this morning.
The win will trigger a rights issue today by Spark, which is likely to tap investors for close to $400m.
Spark’s equity raising will be at a discount of about 10 per cent to fund the deal.
Spark (SKI) and its consortium, which includes Hastings Funds Management and a raft of super funds, were believed to have lobbed a bid that was close to that offered by Chinese government-owned State Grid and its Macquarie backers.
But Spark’s was a cleaner bid, sources said.
The widely-held view has been that State Grid would have offered the most money, but it is understood that its offer came with a number of conditions.
A statement is due out by the NSW government this morning.
JPMorgan and RBC Capital Markets advised the Spark-Hastings consortium, theBusinessNow blog reported earlier.
The group also includes Canadian pension fund Caisse de dépôt et placement du Quebec and Wren House Infrastructure Management, a subsidiary of the Kuwait Investment Authority.
UBS and Deutsche acted for the NSW government in the sale of the coveted TransGrid asset, which owns the state electricity grid, fibre optic cable networks in NSW and the ACT, and provides data cables to military bases.

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Cheung backs off from raising as Spark looks to fund TransGrid

• THE AUSTRALIAN
  
  
• NOVEMBER 27, 2015 12:00AM
  
• Andrew White
  [Image: andrew_white.png]
  Associate Editor
  Sydney
  
  Bridget Carter
  [Image: bridget_carter.png]
  Mergers and Acquisitions Editor
  Sydney
  
  

[img=650x0]http://cdn.newsapi.com.au/image/v1/21150ce2b4b1ed215a26c9ac9fed05d9?width=650[/img]

Analysts have criticised the high price paid for the 99-year lease of TransGrid.

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Cheung Kong Infrastructure has cut its holding in Spark Infrastructure by deciding not to participate in the capital raising to fund the purchase of the NSW electricity transmission business TransGrid.

The Hong Kong-based infrastructure group will have its holding diluted from 7.7 per cent to 6.8 per cent after deciding not to take up shares in the institutional leg of an accelerated entitlement issue to raise $405 million towards the $10.26 billion purchase price.
It is the third time in four raisings by Spark that CKI has decided not to participate since the December 2005 float of Spark, when it held a 9.9 per cent stake.
CKI also controlled an external management company that ran Spark until it was bought out last year, but still owns 51 per cent of the Victorian and South Australian power networks, alongside Spark with 49 per cent.
The dilution of its ownership came as Spark faced a round of analysts’ reports critical of the surprisingly high price paid for the 99-year lease of TransGrid.
Analysts at Citi and Macquarie downgraded their rating of Spark, arguing the acquisition looked expensive, highly geared and likely to decrease cashflow.
Macquarie cut its price target for Spark from $2.19 a share to $2.05, arguing that while the company had quality assets, including its 15.01 per cent stake in TransGrid, its value depended on favourable court appeals and regulatory decisions on its revenue and expense allowances.
Analysts at Macquarie, whose infrastructure and real assets division, with partner State Grid Corporation of China, was an underbidder for TransGrid, also noted that the acquisition was highly geared at 85 per cent. But it said Spark’s method of financing meant that net debt as a percentage of the regulated asset base was 110 per cent.
Spark will pay $751m for its stake, raising $405m via a rights issue, borrowing $205m and adding cash at hand of $140m. Its shares have been in a trading halt since the deal was announced on Wednesday morning and are due to resume trading today following completion of the institutional leg of the non-renounceable, accelerated entitlement issue.
Spark has the smallest holding of the NSW Electricity Network consortium, behind the Westpac-owned Hastings Funds Management with 20.02 per cent, Canadian pension fund Caise de Depot et Placement du Quebec with 24.99 per cent, the Abu Dhabi Investment Authority and the Kuwait Investment Authority with 19.99 per cent each.
Analysts expressed concerns that the consortium paid 1.6 times the value of Transgrid’s $6.4bn regulated asset base (RAB), a yardstick used by regulators to set returns on essential services such as electricity transmission. That compared to the 1.25-1.3 times RAB used to value Spark, CBA Equities said.
Citi downgraded Spark to “sell’’, arguing that the purchase price would reduce distributable cashflow by 4 per cent. It said the high gearing in the business “mat­erially increased’’ Spark’s risk profile because shareholders bore the risk of rising interest rates under local regulatory rules.
Credit Suisse was more optimistic, retaining an “outperform’’ rating and $2.30 a share price target, despite finding the acquisition price was $1bn higher than its valuation. “Although we have reservations about the price paid, the sale has certainly demonstrated the attractiveness of the sector, and (Spark) retains its above-peer dividend outlook,’’ Credit Suisse said in a note to clients.