Singapore’s GIC and Future Fund line up 20pc stake of Transgrid for $2bn

Transgrid provides electricity transmission services on behalf of the NSW government.

Singapore sovereign wealth fund GIC and Australia’s Future Fund are understood to be shaping up to take out the Abu Dhabi Investment Authority’s 20 per cent stake in Transgrid, say sources, in a deal likely to be worth about $2bn.

It comes as GIC is this week expected to close a deal to buy a stake in Transgrid from the Morrison-run fund UTA, securing a 10 per cent holding for at least $1bn in a deal that values Transgrid at $10bn.

A finalisation of that process clears the path for an auction to begin in ADIA’s stake in the company, which provides electricity transmission services on behalf of the NSW government.

DataRoom understands the Future Fund and GIC are expected to take half each of the ADIA holding, adding to the size of their recent purchases.

However, some outsiders may still kick the tyres, such as Spanish renewable energy powerhouse Iberdrola, but existing owners have pre-emptive rights.

The Future Fund finalised a deal to buy a stake worth about $2bn in Transgrid last month from Canadian pension fund OMERs.

Groups that originally bought into the $10bn business have found that the capital spending requirements for introducing renewable energy into the system has been higher than expected, for example the expense of funding interconnectors to the South Australian market.

As a consequence, UTA has sold its position to GIC.

Working on the sale of ADIA’s 19.99 per cent interest is Barrenjoey.

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 19.99 per cent from the Kuwait Investment Authority’s Wren House Infrastructure for a price thought to be around $2bn.

Transgrid is a regulated business, of which about 90 per cent of its assets are 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 its 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.

The developments are unfolding as the competition for the Pacific Equity Partners, Foresight and OPTrust-owned Zenith Energy comes to a head this week, with final bids due in the RBC and Azure Capital-advised auction.

Final bidders include Kohlberg Kravis Roberts, EQT and CVC for the $2bn business that provides contracted power to miners in remote locations.

It is understood to generate well over $120m of annual earnings before interest, tax, depreciation and amortisation.

Zenith Energy has more than 710 megawatts of capacity under contract or in development.

Elsewhere, a subordinated bond offering by Melbourne Airport last week was met with overwhelming demand of $4.1bn, despite it being just a $1bn issue.

The offer included a $450m 5.25-year floating bond priced at 2.05 per cent above the bank bill swap rate and a $550m bond over 7.25 years priced with a 5.989 per cent yield.