Research analysts at Macquarie Group say that Alinta’s northwest assets would strengthen APA Group’s offering to investors if they gained control, but warn tough competition in the auction for the assets may force the listed gas pipeline owner to pay up to oust other suitors.
They say that the assets on offer meet its desire for transmission and remote energy.
In a research note released to the market on Thursday, the analysts said that APA Group’s balance sheet has at least $2bn of capacity for acquisitions, which improves APA’s competitiveness.
It comes after DataRoom revealed in recent months that Alinta Energy was selling the assets in the north west of Australia through investment bank Goldman Sachs.
This column also revealed the interest by APA Group, which is working on a potential acquisition through investment banks Barrenjoey and Morgan Stanley.
First round bids for the Alinta assets are due this week, and APA is facing some strong competition, with groups such as Gina Rinehart’s Hancock, CKI, QIC’s Pacific Energy, Macquarie Group, BP, EQT and likely Andrew Forrest’s Squadron Energy all participating in the auction.
Macquarie analysts said they believed that APA’s pursuit to develop its remote energy business aligns with Alinta’s assets build.
Alinta’s northwest assets in Western Australia are made up of three elements, including an 11 per cent interest in the Goldfield pipeline which APA already owns, a Newman remote energy grid, and a Port Hedland power plant which connects to the North West Interconnected System.
APA currently has one remote energy solution at Gruyere at 43km north east of Melbourne, where it is running both dispatchable and non-dispatchable power.
Mt Isa, Queensland, will be its second as Mica Creek, south of Mt Isa, is energised.
Alinta doubles this, Macquarie says.
“Importantly Alinta also has tier one miner customers pushing hard to using renewable energy at their mines,” Macquarie said.
“The pain point for investors is buying (or) creating the new growth platform, as pricing for these assets remains heated.
“As other infrastructure companies when making similar acquisitions have seen, near term price pressure has emerged.”
They say prices at auctions that APA has been involved in have been intense and it has been unsuccessful on at least five occasions.
“And Alinta with a long list of interested parties is unlikely to be any different competitively.”
The analysts said that one positive for APA is it has about $2bn of debt capacity reducing the immediate need for equity.
They say that indirectly, Alinta also lifts APA’s capability in transmission management, with a network of about 200km of transmission and scope for expansion and acquisition.
On the east coast, the major markets of NSW and Victoria present opportunities with New England the next Renewable Energy auction.
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