by Raymond Chan

The growing move towards negative yields sparks the global pursuit of infrastructure assets. This brought us to the topic of Ausgrid’s saga. Latte with Ray was interviewed by SBS Television last week on Morrison blocking State Grid and CKI’s bids for majority stake of Ausgrid.

To understand the importance of Ausgrid, we need to first understand the electricity generation industry. There’re four key components: (1) Genaration – unregulated, (2) Transmission – regulated e.g. Transgrid (sold last year), (3) Distribution – regulated e.g. Ausgrid (used to be part of Energy Australia) and (4) Retailing – unregulated e.g. AGL & Origin. Augrid is the traditional “pole and wire” business and its revenue (i.e. return) is government-regulated, long life, predictable, and inflation linked.

However, investors normally won’t pay more than 1 time RAB (Regulated Asset Base) for regulated assets but investors (like Sovereign Funds, SOE) access to a much lower cost of capital can afford to bid MORE (Media suggests the Chinese is bidding at 1.5 times. If successful, this would have been a good outcome for NSW government).

To be honest, the Ausgrid sale process has been going for 9 months and there’s NO SHORTAGE of potential buyers (such as Super Funds). However, when those buyers heard both State Grid & CKI showing interests, Latte with Ray would imagine that they might just gave up as they didn’t want to waste time completing with State Grid and CKI (with ultra low cost of capital).

Anyway, for NSW government, given the attractiveness of Ausgrid, there’ll be other buyers for the assets (at a lower price) even in absence of both State Grid and CKI.

It’s just a matter of time. 


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