State Grid, CKI enter fray for NZ power network
Mainland firm eyes second foreign deal in Vector unit's sale
China's State Grid Corp, the largest electrical grid operator on the mainland, and Cheung Kong Infrastructure Holdings, a utility and roads company, are separately bidding in the sale of a power grid in New Zealand that could fetch as much as US$1 billion, sources said.
Vector, the largest electricity and gas distributor in New Zealand, is selling capital city Wellington's power grid.
The network accounts for 23 per cent of the company's power delivery capability.
'It should have strong cash flows but its growth capacity is fairly limited,' said Andrew Harvey-Green, a power analyst at Forsyth Bar.
It will be the second overseas bid by State Grid after its US$3.95 billion bid won the 25-year rights to run the Philippines' power grid in December last year.
State Grid, like many other mainland firms, is expanding in other countries to seek higher returns. China Huaneng Group recently won a bid for power assets in Singapore.
For CKI, New Zealand will be a new market.
The company owns a 23.07 per cent stake in each of the Australian firms CitiPower, ETSA Utilities and Powercor Australia.
Official bids are due today. State Grid, however, will file its bid later in the week, a source said but declined to say why.
Australia's Westpac and one of its infrastructure funds, Hastings Funds Management, is a third bidder. State Grid and CKI declined to comment.
Vector earns a return of 8.5 per cent to more than 9 per cent, New Zealand power analysts said.
Such returns are likely to shrink soon, however. New Zealand's power regulators are reviewing the acceptable rate of return in 2010 and it is widely thought that the government will reduce the amount power companies are allowed to earn.
'The local New Zealand guys have dropped out because of the regulatory uncertainty,' said Rob Foster, a power analyst with ABN Amro.
'It's a big chunk asset that sits well within a fund but on its own it has a bit of a tendency to overearn so that raises its head above the regulatory parapet.'
The change in pricing regime had one analyst saying the asset was worth as little as US$500 million while most felt the lowest range of the valuation was about US$550 million and stretched up to US$800 million.
The company is expected to use the proceeds from the sale to pay off US$600 million in debt due this month until October. The economic uncertainty brought on by the United States subprime crisis and fears of a recession have raised the cost of borrowing.
The company has arranged a one-year bridge loan to cover outstanding debt and Standard and Poor's reaffirmed its corporate rating earlier this month.
Vector has more than 800,000 electricity and gas customers in Auckland and Wellington, and accounts for 35 per cent of New Zealand's electricity connections. The firm is 75 per cent owned by the Auckland Energy Consumer Trust, New Zealand's largest consumer trust.
Vector began the sale process in the middle of last year.
The company bought the power grid six years ago from New Zealand's United Networks, which was exiting the power sector.
The New Zealand government said earlier this year it planned to make it more difficult for overseas investors to acquire strategic assets, such as infrastructure.
The Canada Pension Plan Investment Board is awaiting government approval for its US$1.4 billion bid to buy a 40 per cent stake in Auckland International Airport. The deal is expected to be blocked by government.