At least one global infrastructure investor is understood to be assessing a possible acquisition or equity injection into Transgrid, the company that owns the NSW electricity transmission network.
There’s talk in the market that Transgrid may be subject to a reorganisation of its ownership, and that if a sale of a stake is not afoot, a group may enter the ownership mix to offer fresh equity.
Transgrid was sold in 2015 for $10.3bn by the NSW government as one of its largest privatisation programs.
The buyer was a consortium including 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 at the time thought to be around $2bn.
But now there are suggestions there’s about to be some more change.
The challenge for the owners is that Transgrid requires more capital spending amid the transition to clean energy sources like solar and wind at a time that power prices are soaring, and other than ADIA, there are questions whether the owners have the funding firepower to pay for the future capital needs.
It is also funding interconnectors into the South Australia market, which are costly.
Another option is a debt refinancing if an equity injection does not take place or an existing owner increasing its ownership future.
However, DataRoom understands that parties have been given access to commercial information about the business with the possibility of a partial selldown should it be agreed by the owners.
Working as Transgrid’s strategic adviser in the past has been Barrenjoey, while Macquarie Capital has advised on the debt.
Investment bank Citi is also believed to be around the situation, potentially working for one of the suitors.
Market experts believe that Canadian pension funds would be among the most likely investors to tip equity into Transgrid.
It 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 provides additional future 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.
At 2020, onerous regulations meant the asset had a return on equity of about 5 per cent, which was considered low.
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