Forget the ESG label – instead, consider that the reality has finally dawned that Australian business understands it needs to invest in a low-carbon future to maintain sustainable earnings.
All ESG ever required was for a business, when making a decision, to take into account the full environment, social and governance implications.
No magic involved, just sound business management, acknowledging the fact the world needs to be in the midst of a fundamental change in the way it operates.
Investment funds keen to showcase their own ESG credentials are too inclined to attach the label to myriad deals, from Origin’s ownership exit from Beetaloo to Coles’s transfer of full ownership of its service stations to Viva this week.
In reality both were simply good business decisions in view of the former’s high cost and risks and the latter’s existing joint venture deadline of 2029, which meant value is maximised by Viva’s early control.
Self-proclaimed climate avenger Andrew Forrest is investing $9.2bn by 2030 not to protect the environment but to ensure he still has a business selling iron ore in the future.
He too is “just” a businessman, albeit one with a deep sense of family legacy he desperately wants to protect by selling iron ore to Chinese steel mills.
Forrest, like some other Australian billionaires, sees some flawed legitimacy in grandstanding their green credentials.
This is especially if there is a chance to pre-empt rivals publicity, as with this week’s move by Rio Tinto to join Fortescue and BHP on US President Joe Biden’s first movers coalition.
In 2019 it was another pre-UN press conference – his plastics initiative based on a voluntary manufacturers levy to pay for recycling to rid the world’s oceans of plastic waste. Great idea, but not front page news these days.
Origin’s Frank Calabria also understands where his company’s future lies, which explains why he joined the now short-listed consortium with Canada’s CDPQ to bid $4bn-plus for CWP Renewables.
AGL and the Tilt Renewables consortium is another short-listed player.
If successful, in one swoop Calabria would achieve his 2030 target of four gigawatts of renewable power and storage by 2030, up from 1.2GW today.
The Partners-controlled and (former Origin chief) Grant King-chaired CWP is a big wind and solar platform in Australia, with 1.5GW of power today and another 5.8GW under near-term development.
Earnings before interest, tax, depreciation and amortisation are tipped to more than double from $238m this year to $500m in 2038, underlining the hefty multiple on the deal.
As a guide, Origin’s Eraring Power station is 2.9GW and powers 25 per cent of NSW.
CDPQ, the Quebec investment fund, has $438bn under management, compared to Australia’s largest fund, AustralianSuper, with $260bn. It was the underbidder in last year’s $3bn Tilt sale that went to a consortium including AGL, Telstra Super, Aware Super, Hostplus and the Future Fund.
Macquarie, which is handling the CWP auction, short-listed bidders on Friday ahead of final bids due in November in what looms as both the biggest merger and acquisition deal of the year and certainly one of the most strategic.
In the wake of the Beetaloo deal this year, some analysts tipped some sort of capital return from Origin, which collected $1.6bn from its 27.5 per cent stake in APLNG this year.
If Origin and CDPQ win the CWP bid, an equity raising is more likely given Calabria won’t want to reverse his good work in reducing debt from $9.1bn to $2.8bn.
He has successfully positioned Origin as being part of the solution to the carbon crisis, which is smart given the turmoil surrounding rival AGL and his position as one of the country’s biggest energy retailers.
The decision to close the Eraring coal-fired power station seven years early in 2025 falls into the ESG win list, but once again is simply good business.
Gas has fallen off its pedestal as being a lower emitter than coal, but Calabria happily can say his Gladstone LNG exporter is already a seller of surplus gas to the east coast, amounting to 10 per cent of annual output.
This mitigates the risk of falling foul of political whim at the next energy crisis when gas reservation policies will again be raised as potential saviours to any supply shortages. Reservation policies are arguable before deals are signed, but retrospective sanctions don’t work.
While exiting his ownership of the once highly prized Beetaloo shale gas prospect in the Northern Territory, Calabria has retained some upside to a successful development with a royalty stream and offtake agreement.
A clever deal, which at first glance looked like Origin stepping back from gas exploration but instead was a derisking move.
On the retail side, just over two years ago Origin took a 20 per cent stake in renewables retailer Octopus, which is the fifth-largest retailer in the UK and is expanding in Europe.
Its Kraken software delivers cheaper and arguably better customer service and has already cut $170m of costs from a $250m target in 2024.
Calabria has also ventured into broadband, reselling the Aussie Broadband product with 60,000 customers on its books compared to it 4.2 million energy customers.
The one-stop shop is aimed at boosting brand strength.
ANZ’s Suncorp move
On July 18, ANZ unveiled its $4.9bn bid for Suncorp’s banking assets and, all going to plan, next month its application for authorisation of the deal will be lodged with the ACCC.
When the application lodgement is approved, the law dictates that, unless otherwise agreed, a decision will be made three months later, or in this case in January or February next year.
ANZ, while believing there are minimum competition concerns, is taking a cautious route by applying for authorisation on public interest grounds.
This suggests signs of nerves in the ANZ camp, which is a big four bank swallowing a minnow.
While this deal grinds on, the ACCC is reviving old memories in reviewing the proposed Woolworths acquisition of John Krnc’s IGA store in Karabar on the Cooma side of Queanbeyan.
Fourteen years ago the ACCC told then Woolies boss Mike Luscombe to look elsewhere.
At the time there was a rival bidder in Eric Koundouris and the Supabarn group. The big two supermarket groups were trying to buy every unwanted supermarket in town and the big battle was over who could buy Franklins.
The supermarkets were public enemy number one and cited as yet more evidence of a highly concentrated Australian industry.
The Masters Grocery Association, which represents independent supermarkets, figures it’s only become worse since and it is opposing the Woolworths bid.
Woolworths has a store in neighbouring Queanbeyan but Karabar is in a growth corridor which explains the interest.
The big changes to the market since the ACCC knocked it back last time is that Aldi now has a dozen or so stores in the ACT providing a competitive threat and the Koundouris family are not in the expansion game.
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