Chinese stake in Port of Melbourne bid a sign of times

It is a sign of the times that Victoria failed to mention the Chinese stake in the winning Port of Melbourne bid.

It is a sign of the times that when the Victorian government proudly released details of the higher than expected $9.7 billion deal for a 50-year lease on the Port of Melbourne yesterday it failed to mention that there was a 20 per cent Chinese stake in the winning consortium.

The statement by the Victorian government and another by the “Lonsdale consortium” does not mention that China’s $US200bn ($265bn) state-owned China Investment Corporation has put in about $2bn including debt to get 20 per cent equity in the deal.

The official statement from both the government and Lonsdale group was that the winning consortium consisted of the ­Future Fund, the Queensland ­Investment Corporation, the US-based Global Investment Corporation and Canadian pension group OMERS.

The investment by CIC, an organisation set up in 2007 to manage China’s foreign exchange reserves, was apparently made in connection with global fund manager Global Infrastructure Partners, which is based in Stamford, Connecticut.

The Chinese stake makes up half the 40 per cent of the deal that GIP has. So we have the slightly odd situation where Chinese government investment has not come in directly in the deal, but behind the veil of the Americans. CIC’s 20 per cent ranks alongside the 20 per cent investment by the Future Fund, the 20 per cent by the Queensland government’s investment fund QIC and the 20 per cent by Canadian pension fund interests.

Given that the deal has already been passed by the Foreign Investment Review Board, it now provides further case law of sorts on what type of interest Chinese government-owned entities are allowed to have in key government infrastructure assets.

The winning consortium was reported to have come in just above the bid from industry super fund investment group IFM Investors, Dutch asset manager APG Asset Management and Macquarie Infrastructure and Real Assets (MIRA).

The handy billion dollars or so from Beijing probably just made the difference in the bids of the final two rival groups.

It is less than a year ago that a private Chinese company, Landbridge, owned by Chinese billionaire Ye Cheng, won the $500 million lease of the Port of Darwin. Announcing the deal in October last year, then NT chief minister Adam Giles said it was a “fantastic outcome for the ­Territory”.

The only sensitivity at that time was that the Chinese could only own 80 per cent of the lease and would have to find an Australian partner for the other 20 per cent. But then, suddenly, the Americans raised it as an issue. US President Barack Obama, who has presided over the US “pivot” back to the Asian region, made an unusually direct intervention in Australian affairs by telling Malcolm Turnbull he should have given the US a “heads-up” on the deal.

At the time, the Prime Minister downplayed the comments from Obama at last year’s APEC summit in Manila in November.

But, soon after, the mood of the Turnbull government about foreign investment in major infrastructure assets began changing.

In early December, David ­Irvine, the former director general of ASIO and ASIS, was appointed to the FIRB board. Then in March the government signalled it would be taking closer foreign investment scrutiny on the sales of “critical” state-owned infrastructure assets.

This was followed up by the federal government’s rejection of the bid by Chinese interests for the Kidman properties and then, more controversially, its decision to block bids by two Chinese companies (or one Chinese company and one from Hong Kong) for NSW electricity company Ausgrid.

Suddenly, investment by Chinese companies, including those that already held assets in Australia, has become a politically sensitive issue.

While Victoria celebrated the high price it received for the lease deal yesterday, one question that needs to be asked was how much did it leave on the table if Chinese companies had been able to bid freely for the asset?

It was known that the Zhejiang Port company, which manages some of the biggest ports in China, was looking earlier in the year at making a bid for the Port of Melbourne but didn’t go ahead.

China Merchants, which bought a 50 per cent interest in the Port of Newcastle in 2014 with infrastructure investment fund Hastings Funds Management (for a mere $1.75bn), was also rumoured to be looking for a partner to make a bid but it was unable to put together a consortium.

The move by the CIC to come in behind the US fund was politically astute and may be indicative of how Chinese government-backed investors might operate in the future. The cashed-up Chinese are fast learners.

More clarity is needed about the federal government’s policy on foreign investment in major assets, particularly when it comes to Chinese investment, in the wake of the Ausgrid decision.

It is a question that no doubt Victorian Premier Daniel Andrews will be asked when he visits China later this week. Andrews’ office says he will be visiting China “to promote Victoria as a top destination for international students, tourism and business and investment opportunities”.

Australia needs foreign capital, including Chinese capital, for its development. But more detail is needed on the nature of the Lonsdale consortium and the government’s policy on foreign investment in infrastructure.