GIC moves forward with Transgrid deal, buying Morrison stake

Transgrid was privatised by the NSW government.

Singapore’s Government Investment Corporation has agreed to buy a stake in Transgrid in a deal that values the electricity transmission business at $10bn.

The move was first flagged by DataRoom in September, when the column reported that GIC had emerged as a potential bidder for part of the business that was previously owned by the NSW Government.

DataRoom understands that GIC will buy a 10 per cent interest from the Morrison-run UTA fund for at least $1bn.

Morrison was advised by Macquarie Capital, while GIC was advised by Citi.

However, the deal is yet to be finalised, while existing owners are offered the opportunity to exercise their pre-emptive rights.

But various owners have been in search of an exit from Transgrid as costs related to the transition to clean energy escalate, including the expense of funding interconnectors to the South Australia market.

The only party said to be in a strong position with financial firepower to handle the additional capital spending requirements is the Abu Dhabi Investment Authority.

GIC has $US847bn of assets under management and is one of three investment entities in Singapore that manage the country’s reserves and most of the government’s financial assets.

DataRoom reported last year that interested parties had been given access to commercial information about the business, with the possibility of a partial selldown if it’s agreed to by the owners.

Barrenjoey has been Transgrid’s strategic adviser, while Macquarie Capital has advised on the debt.

The other shareholder to sell down its stake is Canadian pension fund OMERS, which is in talks to offload its interest to the Future Fund, advised by JPMorgan.

Transgrid was sold by the NSW government in 2015 for $10.3bn.

The buyer was a consortium of Spark Infrastructure, Utilities Trust of Australia, Canadian pension fund CDPQ, Wren House and the Abu Dhabi Investment Authority’s Tawreed Investments.

In 2020, Canadian pension fund OMERS purchased a 19.99 per cent stake from the Kuwait Investment Authority’s Wren House Infrastructure Management for a price thought to be around $2bn.

It is also understood that owners might try to secure more debt funding.

OMERS was expected to be a seller of some of its holding, along with UTA.

Transgrid is a regulated business, with about 90 per cent of its assets leased from the NSW government over the long term.

The remainder includes contestable assets such as its connection assets, which provide growth opportunities for investors as demand from new renewable generation increases over the next decade.

When the asset was privatised, the then listed Spark committed to owning 15 per cent, the Morrison & Co-advised UTA 20 per cent, CDPQ 25 per cent and Tawreed Investments and Wren House each 20 per cent.

The consortium paid 1.6 times the asset’s regulated asset base at the time, which was considered a large amount.

In 2020, onerous regulations meant the asset had a return on equity of about 5 per cent, which was considered low.