Josh Frydenberg to officially block CKI’s $13 billion bid for APA

In a move likely to inflame tensions with Beijing, Treasurer Josh Frydenberg has blocked CK Infrastructure’s bid for APA.

Treasurer Josh Frydenberg. Picture: AAP

The Australian government has officially rejected Hong Kong-listed CK Infrastructure’s $13 billion bid for Australian gas pipeline giant APA Group citing national interest concerns.

In a move likely to inflame tensions with Beijing, Treasurer Josh Frydenberg has confirmed a preliminary view taken two weeks ago that CKI’s proposal would not be in the national interest because it would establish a dominant foreign player in the gas and electricity sectors.

“Today the consortium led by CK has been advised of my final decision that its current proposed acquisition of APA Group would be contrary to the national interest,” Mr Frydenberg said in a statement.

“I have formed this view on the basis that it would result in a single foreign company group having sole ownership and control over Australia’s most significant gas transmission business.”

Hong Kong billionaire Li Ka-Shing’s CKI has previously rejected claims from security experts that the company would be answerable to Beijing given China’s more frequen­t interventions in Hong Kong’s affairs and attempts to suppress political freedom.

The APA decision closely follows Canberra’s move to block Chinese companies Huawei and ZTE from participating in the rollout of the 5G telecommunications network.

The Treasurer said Australia remains open to foreign investment.

“My decision is not an adverse reflection on CK Group or the individual companies,” Mr Frydenberg said.

“We continue to welcome any foreign investment that is not considered contrary to our national interest. As Treasurer I consider each foreign investment proposal on its merits.”

CKI faced a tougher hurdle to receive approval under the current Liberal leadership due to its more conservative attitude to foreign investment, one of APA’s top shareholders said earlier today before the Treasurer’s final statement was released.

Rare Infrastructure said the initial knock back to the deal showed a hardened line on foreign ownership of infrastructure assets.

Rare had previously tipped CKI to win regulatory approval for the deal when deposed leader Malcolm Turnbull was still in power.

“The political environment has taken a more hawkish turn and I think that was a factor in the final decision,”

Rare’s co-chief executive Nick Langley told The Australian. “Our sense is there was a change in tone of politics. You’ve had a change in seats and different personnel within government.”

The government signalled on November 7 it would block CK’s bid for pipeline operator APA but left the door ajar for the Hong Kong company to alter its bid or walk away ahead of the final decision.

Sources close to the process said CKI held further talks with the government over its initial adverse view as it sought to understand whether a revised offer could appease the national interest concerns.

CKI had been set to become Australia’s largest gas pipeline operator if the deal proceeded, swallowing APA’s 15,000km of gas pipelines marking 74 per cent of the nation’s gas transmission infrastructure.

While APA is clearly in play as a takeover target for the broader market, CKI faced a stiff challenge to rebadge a bid according to the Sydney-based fund manager which holds over $6bn of assets under management and is a top ten shareholder in APA.

“I think clearly the announcements that were made we read as a signal to CKI that there were some major revisions required to the structure of the bid which may or may not be possible,” Mr Langley said.

“If that’s not possible, it does open the way to other bidders.”

A rival bid from an investor giant like Canada’s Brookfield Asset Management could not be ruled out, Mr Langley reiterated, along with potential interest from Australian investors and infrastructure players.

CKI’s blockbuster bid for APA was pitched at a sensitive time for the nation’s energy industry with Australian Competition & Consumer Commission chairman Rod Sims voicing his concerns over gas supply shortfalls and spiralling prices threatening the viability of heavy

industry and large manufacturers.

The APA takeover was also being closely watched by the industry as it represented the first major test for the government’s Critical Infrastructure Centre which then provides recommendations to the Foreign Investment Review Board.

Rare expects some damage has already been inflicted on Australia’s reputation as a destination for foreign investors.

“Any decision like that creates a degree of uncertainty as foreign capital is looking at opportunities and as a result that inevitably impacts the way foreign investors view Australia,” Mr Langley said.

While Prime Minister Scott Morrison has previously blocked a Chinese consortium which included CKI from buying a 99-year lease for NSW power firm Ausgrid in his previous role as Treasurer, Foreign Investment Review Board chief David Irvine said in August there was no “blacklist” targeting certain countries amid concerns about Chinese investment.

Rare has a unique connection with CKI’s rapid growth in Australia.

Rare was a shareholder in Duet Group, the power and gas network company CKI bought for $7.4bn last year and was also an investor in gas distributor Envestra which the Hong Kong investor acquired in a $2.4bn deal in 2014.

CKI already owns assets including the Dampier-to-Bunbury pipeline in Western Australia and assets in South Australia, the Northern Territory and Gladstone and had agreed to divest the Parmelia pipeline and others in a bid to satisfy competition concerns for its APA bid.