Canadians grab Kuwaitis’ stake in TransGrid
Canadian pension giant OMERS officially scooped up the Kuwait Investment Authority’s 20 per cent stake on Monday.
NSW electricity operator TransGrid says the exit of Kuwait’s Wren House, the fourth biggest sovereign wealth fund in the world, after just five years as a major shareholder was consistent with its intentions when it bought into the poles and wires company back in 2015.
Canadian pension giant OMERS officially scooped up the Kuwait Investment Authority’s 20 per cent stake on Monday after TransGrid’s existing owners declined to top up their own stakes as part of a pre-emption process.
The Kuwaiti investor had been expected to offload its stake for several months but the COVID-19 pandemic threw the timing of the deal into doubt, with the Canadian investor also an owner of London City Airport, which has been hit hard by the coronavirus shutdown.
TransGrid chief executive Paul Italiano said it was a logical move by the Kuwaiti investment giant.
“There is movement on our share register from time to time as different circumstances materialise in their portfolios. Wren has been a great contributor to the business in the five years since privatisation and my speculation is this is probably consistent with their investment thesis at the time and they’ve taken the opportunity to get out,” Mr Italiano told The Australian.
TransGrid is owned by a consortium comprised of Spark Infrastructure, Utilities Trust of Australia, Canada’s CDPQ, Tawreed Investments and now OMERS.
Shareholder Spark Infrastructure had publicly declared it was against buying an extra 20 per cent stake in the electricity operator because the market had undervalued its existing 15 per cent holding in the business.
The TransGrid boss said COVID-19 ructions may have played a part in existing owners not electing to boost their stakes.
“Clearly Wren had conversations pre-COVID and the conversations with existing shareholders were probably post-COVID. So it might be just a quirk of timing more than anything else.”
The group paid $10.3bn in 2015 to buy TransGrid as part of a major privatisation drive by the NSW government, with major infrastructure including Ausgrid and a half-stake in WestConnex also sold as part of an asset sale.
The consortium’s blockbuster bid was ahead of market expectations for a $8bn-$9bn deal and represented a multiple of 1.6 times the regulated asset base of the company, above the 1.4-1.5 times that analysts and investors say a company can afford to pay for electricity network assets and still make money.
Extracting returns from the asset was seen as difficult because of a five-year job guarantee imposed by the government ahead of the sale and a promise made to the state government that network charges would be lower in 2019 than they were in 2014.
Mr Italiano said he had yet to hold talks with OMERS but said the Canadian investor was aware of its strategy and investment plans as part of due diligence.
“OMERS are a very experienced investor in critical infrastructure. And they’ll be a very, very good addition to the share register based on their global experience. That will be a good thing,” Mr Italiano said.
“Everyone is aware of the investment pipeline that TransGrid has in front of them and the commercial and operational challenges that it poses. OMERS would have come into that with their eyes open but we haven’t had the opportunity to sit down with them and talk it through.”