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
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A well-written article outlining why Singapore has been fairly
successful in Australia but also showing the possible hiccups as
well.