APA shares plunge after Canberra blocks CKI buy bid

APA Group shares slumped 10 per cent after Josh Frydenberg signalled he would block CKI’s bid for the pipeline owner.

APA is Australia’s biggest gas pipeline owner.

APA Group shares slumped 10 per cent yesterday after Josh Frydenberg signalled he would block Hong Kong-listed CK Infrastructure’s $13 billion tilt at Australia’s biggest gas pipeline owner.

Yesterday, both APA and CKI remained silent on the Treasurer’s “preliminary view” that the agreed takeover was not in the national interest after the announcement blindsided the pair on Wednesday evening.

When APA shares opened yesterday morning, they dropped back to around where they were in June before the CKI bid was ­announced. They ended trading down 94c at $8.57.

The slide in the share price indicates there are few bets being placed that either CKI will be able to join with a local bidder to revive its bid, or that a local infrastructure buyer will be prepared to pay a premium.

Deutsche Bank analyst ­Michael Morrison said there was a chance CKI could bring in local investors to ease concerns over the deal, which would give CKI control of the major pipeline assets on both sides of the country.

“CKI is advised by a number of Australia’s top infrastructure banks and we believe further investors will be introduced into the consortium,” Mr Morrison said.

“In the absence of this, CKI has done all the heavy lifting and an alternative bidder could well be waiting for an opportunity.”

$8.57 APA Group closed down 94¢ q

When CKI made its offer of $11 per share to APA, the pipeline company made an unsuccessful search for potential counter-bidders as part of its efforts to ensure it that the deal was the best price available.

Super fund infrastructure investor IFM is seen as the most ­likely local bidder to approach APA with a lower bid if the Treasurer’s final decision, due in two weeks, is the same as his preliminary view.

Wood Mackenzie Asia-Pacific gas and LNG director Nicholas Browne said APA was unable to find a rival bidder when it went looking.

“If the bid doesn’t go through, they may not get another offer, or at least not one as good,” he said.

Mr Browne also said there was ­political pressure on gas-related industries.

“It is possible that pipeline operators will start to come under pressure to reduce their margins, which would benefit industries and consumers,” he said.

APA’s partner in the Sole gas project off Victoria and an associated onshore gas plant, Cooper Energy, questioned the difference between CKI’s bid and other ­infrastructure takeovers.

CKI is already a major player in Australia’s energy sector after buying power and gas network company Duet Group for $7.4bn last year and acquiring gas distributor Envestra for $2.4bn in 2014.

But in 2016, separate bidding for NSW power distributor Ausgrid was knocked back on national interest grounds.

Cooper managing director David Maxwell told The Australian: “The thing I find bemusing with this is that there is already a lot of foreign ownership of our energy infrastructure. What is the logic behind this deal copping restraints that others don’t have? That’s a challenging issue.”

While the foiled deal won’t have an impact on its own relationship with APA, the Cooper boss hinted the blocking of the deal could restrict investment.

“CKI had actually committed capital expenditure to support the industry. They were putting skin in the game,” Mr Maxwell said.

But he said the assets were undoubtedly a key piece of critical infrastructure which made it a tough call for the government.

“It’s very hard to say gas pipelines are not a key piece of infrastructure,” Mr Maxwell said.

“You don’t have multiple large gas pipelines.

“Economies of scale says you have one big one rather than two or three small ones.

“So like an airport or a port, it becomes a piece of critical infrastructure.”

Credit agency Moody’s said Mr Frydenberg’s rejection would not change its outlook on APA’s debt because it had not factored in the bid passing.

“APA’s ratings did not incorporate the credit impact of the proposed acquisition, given the uncertainties associated with whether key regulatory approvals would have been forthcoming,” Moody’s said.

“As such, the government’s likely rejection of the proposed acquisition has no ratings ­impact.”