Singapore prepares to take power
While Australian institutions look overseas, infrastructure is being snapped up writes Robert Gottliebsen
June 30, 2007
IF the Babcock & Brown consortium succeeds with its bid for Alinta, it will be an enormous triumph for Singapore Power because they are set to dominate Australian gas and electricity distribution infrastructure in NSW, Victoria and the ACT.
The Singaporeans will have assembled an Australian energy empire far more powerful than any of the old state-based energy distribution organisations.
Singapore's main Australian energy rivals are those associated with Hong Kong's CKI group. There are few Australian players in this key infrastructure arena.
Not only has Singapore Inc secured dominance in energy distribution in the biggest states but, via Singtel (Optus), it is likely to be a winner in telecommunications because of bad relations between Telstra and the Government.
And, of course, the Singapore Government's investment arm, GIC Real Estate, is taking a major plunge into Australian property, buying half of Westfield Parramatta, a stake in Myer in Melbourne and is negotiating to buy half of Westfield's shopping centre in Doncaster, all assets that would normally be key investments for the local institutions.
But the energy coup dwarfs any of the other plays and has been cleverly masterminded by Singapore Power's chairman, Ng Kee Choe, and chief executive Quek Poh Huat. In a series of moves over recent years, Ng and Quek have acquired Australian energy assets worth $6.9 billion, which are now part of Singapore Power's 51 per cent owned listed Australian subsidiary, SPAusNet.
The Babcock & Brown Alinta deal will more than double Singapore Power's Australian asset base. Of course, the Alinta scheme of arrangement is not certain to succeed, despite director recommendation. Babcock & Brown is offering Alinta shareholders a mixture of Babcock & Brown securities and cash, which Alinta directors valued at $16.46 including a 40c franking credit.
But as the Alinta shareholders come closer to voting on the Babcock & Brown scheme of arrangement, their shares are about $15.25, well below the top value placed on the bid by the directors and, even more significantly, about 55c below the $15.80 cash bid put on the table by Macquarie.
Alinta shares have been rising so it is possible the market will re-evaluate the Babcock & Brown bid. But unless that happens, it is going to be hard to get shareholders to approve, particularly if Macquarie is still prepared to offer $15.80 cash.
There is no doubt Alinta directors used the best advice possible to compare the Macquarie and Babcock bids, but the fact Macquarie had supported Alinta's former chairman and chief executive in a poorly conceived management buy-out put them at a disadvantage.
It is also possible, although unlikely, that some managers of Australian superannuation money might actually cotton on to what is happening to them.
Alinta stockholders will effectively swap their power-generation assets for Babcock energy infrastructure stock and watch as their assets are given a deep fee rinse as part of the transfer and ongoing management process.
With the cash they receive, Alinta shareholders will be looking at other infrastructure assets.
SPAusNet is considering whether it will acquire Singapore Power's Alinta assets, should the scheme of arrangement go through. It is almost certain it will take the assets because they give SPAusNet a remarkable presence, probably not duplicated by any foreign company in a major developed country.
Hopefully the Alinta energy distribution assets that go to SPAusNet will be transferred at Singapore Power's acquisition price.
SPAusNet will require a big equity issue and almost certainly many of the subscribers will be former Alinta investors.
Therefore, the only real difference to many Australian institutions as a result of the offer is that they will pay much larger management fees on the same assets and they have lost control.
Before the Alinta deal, Singapore Power was the significant force in electricity distribution in Victoria after the takeover of TXU.
Alinta assets include the old AGL NSW gas pipeline network and almost a million gas customers, 285,000 electricity customers in Victoria and 34 per cent of United Energy.
Alinta gives Singapore Power the biggest gas distribution networks in NSW and Victoria, as well as half the company that provides the ACT's gas, electricity and water.
And behind those customer bases is a vast network of wires, pipes and management agreements.
The Babcock & Brown consortium plans also to transfer to Singapore Power the pipeline taking gas from Bass Strait to NSW and the pipe supplying gas to Gladstone in Queensland.
Australia is well placed to use natural gas as a carbon reduction agent.
Santos wants to pump carbon dioxide into its emptied Moomba fields, and the combination of gasand solar are likely to be veryimportant in future power generation.
Although the prices charged to consumers are regulated, Australia requires further major investments in infrastructure, so price regulations must allow sufficient profit to justify new investment.
It is precisely this issue that lies behind the wrangle between Telstra, the Government and the Australian Competition and Consumer Commission.
It is strange that at a time when Australian institutions are financing global infrastructure, saying local investment opportunities are hard to find, the Singaporeans can capture key infrastructure assets.
Clearly they have a different view on the value of local electricity, gas and prime property assets.
Given the enthusiasm with which Australians are investing offshore, it is not an option for the Government to restrict Singapore's investment in our key infrastructure assets, particularly as the Singaporeans manage them well.
http://www.theaustralian.news.com.au/story/0,20867,21991214-643,00.html--
A well-written article outlining why Singapore has been fairly successful in Australia but also showing the possible hiccups as well.