David Uren on Josh Frydenberg’s decision to block CK Infrastructure’s takeover of APA

The Treasurer has delivered two key messages to foreign companies thinking of investing in Australian infrastructure.

Australia's Treasurer Josh Frydenberg. Picture: AP

Josh Frydenberg has delivered two key messages to foreign companies thinking of investing in Australian infrastructure: don’t bid for anything that is too big and don’t try to buy an asset that is in some way “unique”.

The Treasurer went out of his way to assure the Chinese government that his preliminary decision to reject Cheung Kong Infrastructure bid for gas pipeline company APA was not a reflection on its character or nationality.

The CK Group was already a substantial investor in Australia’s gas and electricity sectors and the policy did not discriminate against any investor or country, he said.

The objection that the bid would result in an excessive concentration of foreign ownership in the gas transmission business was consistent with the policy on infrastructure assets set out by Scott Morrison in February this year.

Mr Frydenberg made no reference to national security, which was the excuse used by Morrison to reject the CK Group’s earlier $10bn bid for Ausgrid, and was also cited as the reason to ban Chinese communications companies Huawei and ZTE from participating in the rollout of Australia’s 5G infrastructure.

However, the Coalition had come under intense political pressure to ban the deal because of its Chinese links. Radio broadcaster Alan Jones campaigned on the issue as did the Australian Strategic Policy Institute executive director Peter Jennings.

Jennings argued that Chinese intelligence services were deploying “malware” into the critical infrastructure of potential opponents, creating options to harm an enemy in conflict.

The CK Group was well aware of the concerns about concentration of foreign ownership and is understood to have offered to meet conditions, such as a minimum number of Australian directors and controls over the management of operating systems and data.

Foreign investment decisions are not a binary tick or cross, with many deals granted conditional approval.

At least some of the seven member Foreign Investment Review Board thought the deal could go ahead with conditions imposed.

Frydenberg’s decision to release a “preliminary” decision is peculiar: normally if the Treasurer has preliminary concerns, they are expressed privately giving the bidder a chance to address them. Publicly announcing a preliminary decision gives the CK Group few options, other than to withdraw.

Besides the concern about concentration of ownership — the deal would have given CKI three-quarters of the gas pipelines in NSW and Victoria — Frydenberg described APA as a “unique company”.

Similar terms were used by former Treasurer Peter Costello when rejecting Shell’s takeover for Woodside, by former Treasurer Wayne Swan when rejecting the Singaporean bid for the ASX and by Morrison when rejecting a Chinese bid for pastoral company Kidman.

Unique assets would normally attract a premium, but if foreign buyers are barred, they are more likely to be priced at a discount. APA shares are expected to fall in the absence of a bid.