China State Grid Corp., the nation’s largest power distributor, agreed to pay Singapore Power Ltd. A$824 million ($810 million) for 19.9 percent of Australia’s SP AusNet as part of its $50 billion global acquisition plan.
The Chinese state-owned company will also acquire 60 percent of Singapore Power’s other Australian energy and infrastructure assets held by SPI (Australia) Assets Pty, the Singaporean company said today in a statement. That closely held unit, known as Jemena, manages more than A$5 billion of assets and had A$1.7 billion in sales in 2012, according to its website.
China State Grid this week began marketing $2 billion of dollar-denominated securities, its first international bond sale, as it pushes for more overseas acquisitions to boost profits limited by caps on electricity charges at home. The Australian acquisitions will give the Chinese company stakes in about A$15 billion of power and gas assets and more than 2.8 million customers in the world’s 12th largest economy.
“China is the world’s largest power market, but profit margins in operating networks are low - only at about 2 percent,” said Lai Shensheng, a Shanghai-based power analyst with Capital Securities Corp. (6005) “Developed markets such as Australia and Singapore have quality networks and stable demand. They are good targets for State Grid’s acquisitions.”
SP AusNet rose 1.6 percent to A$1.295 in Sydney trading, giving the Melbourne-based company a market value of A$4.36 billion. It’s gained 17 percent this year.
State Grid President Liu Zhenya is seeking as much as $50 billion in international assets by 2020, in line with Premier Li Keqiang’s policy of acquiring overseas resources. The company has businesses in Brazil, the Philippines and Portugal.
Buying the stakes from Singapore Power adds to China State Grid’s investment in Australia after it agreed in November to buy 41.1 percent of ElectraNet Pty, the operator of the main transmission network in South Australia. It’s also considering a bid for Brookfield Infrastructure Partners LP (BIP:US)’s stake in a New Zealand utility, people familiar with the matter said last month.
“From China State Grid’s perspective, these are fairly attractive assets,” Sajal Kishore, the Sydney-based director of energy and utilities at Fitch Ratings Ltd., said today by phone. “They are stable businesses and benefit from a stable regulatory framework.”
The transactions are subject to government and regulatory approvals in China and Australia. The terms for the acquisition of the stake in SPI Australia weren’t disclosed.
Lazard Ltd. (LAZ:US) and Credit Suisse Group AG advised Singapore Power, while Goldman Sachs Group Inc. and Macquarie Group Ltd. advised State Grid.
Singapore Power will retain 31.1 percent of SP AusNet, which owns and operates electricity transmission and power and gas distribution assets in Victoria state. SP AusNet will remain publicly traded, it said.
SP AusNet owns and operates more than A$10 billion of electricity and gas distribution assets and has 1.3 million customers. SPI Australia has an electricity distribution network serving more than 300,000 customers in Melbourne and a gas distribution network serving more than 1 million customers in Sydney.
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