November 29, 2012 11:04 am

China State Grid enters Australian market

China’s State Grid, the world’s largest utility by assets, has purchased a 41 per cent stake in ElectraNet, marking the first time a Chinese utility has invested in the Australian grid.

State Grid is aiming to quadruple its overseas assets from US$8bn to more than US$30bn by 2020 and has already invested billions of dollars in grid assets in Portugal and Brazil in the past two years.

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The state-owned Chinese company bought the stake in South Australian electricity supplier ElectraNet for about A$500m (US$523m), according to people familiar with the matter, from Powerlink, a utility company owned by the state of Queensland.

Powerlink had been searching for a buyer for its stake in ElectraNet as part of Queensland’s debt reduction efforts, and settled on State Grid because it was the highest bidder and had experience in transmitting electricity over long distances with minimal losses, according to people close to the process.

China’s utility companies have been on a global shopping spree in the past several years, often seizing on opportunities presented by the slowing global economy and debt-laden governments selling utilities for cash.

Adam Worthington, head of utilities research in Asia for Macquarie Securities, said State Grid’s deal with Powerlink might be followed by other Chinese utility investments in Australia. “From what we are hearing there could be more of these,” he said.

Recent global deals by Chinese utilities include Three Gorges’ $3.5bn stake in EDP of Portugal late last year, and State Grid’s purchase of a 25 per cent stake in Portugal’s national electricity grid in February.

Gordon Jardine, chairman of ElectraNet, said the operation of the utility was unlikely to change under the new owners because ElectraNet was already tightly regulated as a monopoly. He added that he was “looking forward to welcoming the new directors”.

Once the deal is finalised – which is expected by the end of December – State Grid will control four out of ElectraNet’s 10 board seats, meaning that a majority of board seats will be held by foreigners. The other owners of the grid are YTL Power of Malaysia, Hastings Fund Management of Australia, and Macquarie Specialist Asset Management.

Sun Jinping, chief investment director of State Grid, said in a statement that the company was “committed to working together with ElectraNet’s other shareholders to ensure that it continues to provide safe, secure and sustainable energy in South Australia”.

The sale of Electranet comes as the Liberal National government in Queensland looks to cut high debt levels. In October, the state sold a A$1.5bn stake in railway company QR National and is considering further assets sales and privatisations.

Earlier this week, Moody’s downgraded its outlook for Queensland’s AA1 credit rating from stable to negative, citing a “deterioration in the state’s financial performance” which has persisted since 2007. Queensland lost its triple A rating during the financial crisis.

State Grid joins Hong Kong-listed CLP as an investor in the Australian electricity market. CLP owns EnergyAustralia, which supplies electricity to Sydney. An A$3bn flotation of the company was put on hold earlier this year because of volatile equity markets.

Additional reporting by Neil Hume in Sydney

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