Australian infrastructure is proving to be a big draw for state-owned investors (SOIs) with foreign sovereign funds set to eclipse domestic SOIs as assets are auctioned off. Canadian public pension funds (PPFs) are leading the charge in the electricity utility space, having also boosted their exposure to the country’s real estate sector.
AustralianSuper is looking to sell a 16% stake in New South Wales’ biggest electricity distribution company, Ausgrid, estimated to be worth more than A$2 billion. An auction is expected in the second half, leaving the domestic PPF with a direct and indirect stake of little more than 10%, just five years after it acquired a 50.4% stake alongside IFM for A$16 billion. The PPF is looking to rebalance its portfolio towards foreign investment as it seeks to meet ambitious targets.
Canadian funds are expected to take the lead in the bidding process. Canada’s OMERS has already secured a strong foothold in NSW’s electricity infrastructure with a 20% stake in power transmission company Transgrid from KIA’s infrastructure arm Wren House; other investors in the company include CDPQ (25%) and ADIA (20%).
Canadian PPFs are also lining up for another weighty infrastructure player, which could help further boost their involvement in Transgrid. This week, Spark Infrastructure Group agreed to let Canada’s PSP Investments join a consortium including OTPP and KKR that was looking to buy the Australian electricity infrastructure investor. Last month, the consortium offered A$5.1 billion (US$3.8 billion) and due diligence is underway. PSP is expected to provide one-third of the total funding required for the acquisition.
Spark had initially spurned an offer for A$4.9 billion, but the offer was sweetened to around 12% above its share price value. Spark’s assets include a 15% stake in Transgrid, Boman Solar Farm (100MW in operation and a 2.2GW development portfolio), 49% of South Australian electricity distributor SA Power Networks and 49% of Victoria distributors Citipower and Powercor
Australian infrastructure has garnered considerable interest from state-owned investors. Global SWF data shows that from 2011, SOIs have invested a total of US$39 billion into the sector with transportation infrastructure – seaports and airports – representing 39% of the total, followed by utilities (30%) and roads (17%).
Australian funds are dominant in SOI investment in their nation’s infrastructure. Combined investment representing just under 40% of the total capital deployed since 2011. Queensland Investment Corporation (QIC) and Future Fund each represent 11% and AustralianSuper a further 10%, followed by TCorp with 7%. Of the foreign SOIs, Abu Dhabi’s ADIA is the leader with 11%, but Canadian PPFs are also big investors in Australian infra with a combined 27% share over the period. Leading Canadian investors include OMERS (8%) and CDPQ (6%).
Australia's energy and utilities infrastructure network is mature, but there are opportunities for growth, particularly in the fast-growing renewable energy segment. The country is expected to gradually phase out coal-fired thermal electricity generation in favor of renewables, with wind and solar power leading growth. Improvements in transmission and distribution infrastructure and battery storage capacity will also feature prominently in the infrastructure growth story. The pressure is on to improve electricity grid infrastructure to support the rise of electric vehicles, among other new electricity demands from households.