State Grid may top up on its Australian assets

State Grid Corp of China's search for as much as US$50 billion of international power assets may see it target Australia's Duet Group and Spark Infrastructure Group.

China's biggest power distributor won regulatory approval last month to buy Australian assets including almost 20 per cent of electricity and gas company SP AusNet.

Duet, with a market value of US$2.2 billion, and the US$1.9 billion Spark might be the next targets because of their regulated, long-term cash flows from gas and electricity assets across Victoria, South Australia and Western Australia, said Morgans Financial and Royal Bank of Canada.

Crimped by price caps in China, State Grid is turning to overseas, where it says returns from investments can be five times higher than at home. The state-owned company's 2012 return on invested capital of 3.8 per cent trailed all but one major listed utility in Asia.

To boost its returns, State Grid could look for acquisitions in Australia because it was a relatively safe place to invest, PricewaterhouseCoopers said.

"China has a well-stated ambition to globalise its large enterprises," said Andrew Parker, a partner at PwC specialising in Asian deals. "There's a lot of positive attraction about Australia, with a stable economic and political environment and a regulatory regime which is generally understandable and reliable."

State Grid president Liu Zhenya is seeking as much as US$50 billion in international assets by 2020. He said in November 2012 that the company's overseas assets totalled only US$5 billion.