Sparks could fly over electricity as NSW commits to WestConnex sale

On Friday, the NSW government confirmed that it would pursue a sale of the remaining 49 per cent interest that it controls of the WestConnex project. Picture: Jonathan Ng

Some key decision makers within the NSW government are believed to be warming to the idea of further asset sales after it confirmed on Friday that it would proceed with a sale of its stake in the WestConnex road project.

While a sale of government-owned stakes in electricity distribution assets has also been up for discussion amongt state political leaders of late, the understanding is that this is on the agenda but not a priority.

Insiders say that while the NSW Treasurer Dominic Perrottet may see selling off the state’s electricity assets as a way to drive down debt, others are uneasy about the move because they believe they would not gain the public’s support for the decision and would require a legislation change.

NSW is believed to be opening up options for asset sales at a time when the pandemic has taken its toll on its balance sheet, although any deals such as electricity asset privatisations would likely happen after WestConnex is sold.

This would mainly include smaller assets, but especially government-owned real estate.

The state’s electricity assets were sold under the leadership of former Premier Mike Baird, and some have since questioned whether NSW would fully privatise the assets.

Electricity transmission business TransGrid was sold in 2015 to a consortium including Spark Infrastructure for $10.3bn.

In 2016, it sold a 50.4 per cent stake in the NSW electricity distribution businesses Ausgrid to AustralianSuper and IFM Investors for $16bn, and the following year a 50.4 per cent interest in Endeavour Energy was sold to a consortium led by Macquarie Infrastructure and Real Assets.

The sale of the electricity assets was followed by a sale of a 51 per cent stake in Sydney Motorway Corporation, the entity behind the motorway project WestConnex, for $9.26bn in 2018.

On Friday, the NSW government confirmed that it would pursue a sale of the remaining 49 per cent interest that it controls.

Working on the sale are Royal Bank of Canada and Citi, and flyers are expected to be sent to prospective buyers at the end of this month.

The clear frontrunner to buy the rest of the asset is Transurban and the challenge for advisers will be to drum up competitive tension given it also has pre-emptive rights.

One option on the table could be an initial public offering.

Other groups that were in the contest for the WestConnex stake last time around were IFM Investors, Dutch infrastructure fund APG and Plenary with Cintra out of Spain.

Some other potential buyers could be Abertis and Canadian pension fund OMERs.

The toll road operator Atlas Arteria could also show some interest, while expected to take a look will be local infrastructure investor Morrison & Co, and Brookfield should not be ruled out.

It will be interesting to see if Transurban will still call on its regular advisers to work on the transaction.

Previously, when Transurban bought a stake in WestConnex with backers, including the Abu Dhabi Investment Authority, the Canada Pension Plan Investment Board and AustralianSuper, it used UBS, Morgan Stanley and Macquarie Group.

However, in recent months, UBS Australian infrastructure head Jarrod Key has departed the Swiss bank with key team members to join Barrenjoey Capital, while Morgan Stanley infrastructure banker Julian Peck this year left to join APA Group.

Key will be on gardening leave until early next year.

WestConnex is a 33km predominantly underground motorway project that was earmarked to cost about $16.8bn.

Stages one and two of the project have been completed and the third stage, which is the link to the M4 and M5 motorways via a 9.2km tunnel, is expected to be finished in 2023.