Hong Kong’s Chow Tai Fook buys Australia’s Alinta Energy for US$3.1bn

Alinta, owned by group of hedge funds and private equity, including TPG Capital, operates 1,800 MW of generation capacity in Australia and New Zealand

PUBLISHED : Thursday, 16 March, 2017, 6:38pm
UPDATED : Friday, 17 March, 2017, 2:30pm

Chow Tai Fook Enterprises (CTFE), best known for its sister firm retailer Chow Tai Fook Jewellery, has agreed to buy all of Australian utilities Alinta Energy for around A$4 billion (US$3.1 billion), marking the first major foray into Australia’s energy sector, according to two sources familiar with the deal.

The firm controlled by the family of Hong Kong tycoon Cheng Yu-tung, who passed away in September has entered into a binding agreement to buy all of Alinta’s shares, subject to approval by Australia’s Foreign Investment Review Board (FIRB), the company said in a statement on Thursday.

“CTFE already has significant investments in Australian real estate and integrated resorts, but Alinta Energy would be CTFE’s first significant investment in the energy sector in Australia,” Alinta said in a separate statement.

CTFE will retain the existing Alinta Energy senior management team and grow its business by “pursuing appropriate investment opportunities in the Australian energy market as they arise”, it said.

Neither CTFE nor Alinta would comment on the transaction price, but according to the sources, it exceeds the A$4 billion valuation targeted by an initial public offering process pursued by Alinta’s owners which took place concurrently with negotiations with CTFE.

CTFE already has significant investments in Australian real estate and integrated resorts, but Alinta Energy would be CTFE’s first significant investment in the energy sector in Australia
Alinta statement

The price values Alinta above 9.7 times forward earnings before interest, taxes, depreciate and amortisation value fetched by listed peer AGL Energy, they said.

CTFE’s offer was “superior in all respect, including certainty, timing, liquidity and price”, they told the South China Morning Post, adding the decision to pursue a sale to CTFE only came Thursday morning, when the listing prospectus was being finalised.

Alinta is owned by a group of hedge funds and private equity, including TPG Capital.

Sydney-based, it operates power plants in Australia and New Zealand with a total generation capacity of 1,800 mega-watt (MW).

The bulk of its businesses are gas-fired power generation and gas pipeline transmission in Western Australia, although it also retails electricity and gas to 790,000 customers in Victoria and South Australia.

The sources said 60-65 per cent of Alinta’s revenues are secured by long term “take-or-pay” contracts on power sold by its plants to the wholesale market, under which customers have to pay regardless of the volume of power delivery they take.

Its retail business, mainly in West Australia, is regulated by the state government, they said, adding gas prices have been increasing in recent years.

Relatively stable long-term cash flows from regulated utilities in developed markets have attracted a string of Chinese interest in recent years, including Hong Kong tycoon Li Ka-shing’s companies and state-owned power distributor State Grid Corp.

The deal comes despite Canberra last year rejecting bids from China’s State Grid Corp and Hong Kong’s Cheung Kong Infrastructure Holdings for electricity grid Ausgrid on national interest grounds.

Li’s companies’ recent A$7.3 billion takeover of Alinta’s peer Duet Group is being reviewed by FIRB.

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