New South Wales sells Endeavour Energy to Macquarie

11 May 2017 - 12:00 am UTC

A Macquarie-led consortium, including AMP Capital, BCIM and Qatar’s sovereign wealth fund will acquire half of Endeavour Energy in the New South Wales government’s third electricity network privatisation. 

State Premier Gladys Berejiklian said on Thursday NSW would receive AUD 7.62bn (USD 5.62bn) from the 99-year lease of 50.4% of the power grid. The government said it will clear AUD 2.9bn in cash.

Macquarie Infrastructure and Real Assets will take a 30.16% share in the winning consortium known as Advance Energy, while AMP Capital will hold 25% on behalf of its long-term client, Australian superannuation fund, REST Industry Super. It is understood AMP Capital is launching Global Infrastructure Fund II by the end of the year and believes this investment will help it attract investors to the new fund.

They are joined by Canada’s British Columbia Investment Management Corporation with 25% and the Qatar Investment Authority the remaining 19.84%. 

Macquarie is using money from a combination of its own Australia based funds in MIRA and local and global investors.

Sources close to the consortium members said it is paying just under AUD 2bn in equity, paying off all AUD 5.4bn of the network’s debt plus AUD 200m in stamp duty.

The debt is provided by 16 banks from Australia, China, Canada, Europe and the US, including ANZ Bank, Bank of America Merrill Lynch, Bank of Tokyo-Mitsubishi, Bank of China, Commonwealth Bank, Credit Agricole, Export Development Canada, ICBC, Mizhuo Bank, Scotiabank, Societe Generale and Westpac.

Financial close is expected in the next two months.

The Macquarie consortium was up against the same Hastings consortium that leased high voltage network TransGrid for AUD 10.26bn in 2015. Apart from Hastings, they are Spark Infrastructure, Kuwait Investment Authority, Abu Dhabi Investment Authority and La Caisse de dépôt et placement du Québec.  

The Endeavour sale represents 1.62 times the network’s regulated asset base. This is a relatively high price, although it is thought to be about the same as the multiple paid for TransGrid.

An IFM Investors and AustralianSuper pairing leased 50.4% of the state’s biggest electricity network, Ausgrid, for AUD 16.189bn, or 1.41 times RAB in late 2016.

However, it is likely the price paid for Ausgrid would have been higher if the federal government hadn’t blocked the two final Chinese bidders of State Grid and Cheung Kong Infrastructure. IFM’s and AustralianSuper’s subsequent unsolicited bid had no competitors.

The higher price for TransGrid was justified in part by the scope to make money from an unregulated telecommunications network it owns, plus the consortium was allowed to lease 100% of the business.

Endeavour’s valuation can be partly put down to the growth prospects of the smaller network because it covers the rapidly growing Western Sydney region where construction of a new airport from 2018 is expected to boost the local economy.

However, it is understood the winner paid a hefty 10% higher price, or around AUD 700m more, than the rival Hastings-led consortium bid.

Berejiklian said the state had exceeded its AUD 20bn target for the net proceeds from the three networks, with about AUD 23bn received after paying off debt to go towards new infrastructure in NSW including housing, hospitals, roads, rail and two new sports stadia in Sydney. 

State treasurer, Dominic Perrottet, told reporters the state had done “very, very well” out of the sales of TransGrid, Ausgrid and Endeavour.

The state has so far committed AUD 11.9bn of the fund and the Premier and Treasurer said they are now considering using the remaining funds to speed up existing projects and possibly announce new infrastructure investments. Some of these are expected to be announced in the state budget due on 20 June.

Final bids were lodged on 1 May for the power distributor that services 1m homes and businesses in Western Sydney and the Illawarra region to the south of the city. 

It is understood that both bidders received clearance from the Foreign Investment Review Board before tabling their final offers. The Endeavour sale was not thought to be as contentious as the 2016 sale of sister network Ausgrid, which supplies power to nationally sensitive sites in central Sydney. 

Macquarie is said to have been keen on the Endeavour network, after finishing as the under bidder on TransGrid and later ditching its bidding partner State Grid of China during the subsequent Ausgrid auction.

It proved a fortuitous move given the state-owned enterprise was blocked from buying Ausgrid, but left Macquarie without a piece of the lucrative NSW privatisation pie. 

Endeavour produced EBITDA of AUD 697m for the 2015-16 financial year. 

“We have seen how successful our asset-recycling strategy has been in driving the state’s economic performance and in funding the infrastructure projects NSW has been crying out for,” Perrottet said.

Having privatised three electricity networks and its land titles registry, NSW will now focus its energies to attract infrastructure investors to the last remaining sell-off of the yet to be completed WestConnex motorway. 

Advisers for the consortium are Macquarie Capital, and law firm Ashurst. UBS, Deutsche Bank and law firm Allens Linklaters advised the government.