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INDUSTRY INSIGHTS: NSW UTILITIES ASSETS INVESTMENT DEMAND

Our Commonwealth Bank utilities team, led by Nick Sankey, provide insights into the current investment demand for NSW utilities assets.

  • Strong investment appetite for NSW utilities assets
  • Several consortia already well advanced for asset privatisation
  • Significant offshore interest in assets – particularly pension and sovereign wealth funds
  • Privatisation of assets to provide investment in NSW infrastructure

Strong investment demand for NSW utilities assets

The recent re-election of the NSW Coalition government has given the green light to the privatisation of three out of the four transmission and distribution networks. Unlike Victoria however, NSW joins South Australia in pursuing this initiative on the basis of a long-term lease, as opposed to an outright sale of the assets.

As part of this policy, the NSW Government will:

  • Retain 51 per cent of all transmission and distribution assets
  • Sell 100 per cent of Transgrid
  • Sell 50.4 per cent of Ausgrid
  • Sell 50.4 per cent of Endeavour Energy
  • Retain full ownership of Essential Energy, the rural network

It is anticipated that a total of approximately $20 billion in debt funding will be required by bidders to acquire these assets, and Commonwealth Bank is well placed to support these investors with their short and longer terms funding needs via both the domestic and international debt capital markets.

Next steps in the privatisation process

It is expected that Transgrid will be the first asset sold by the government, and now that legislation has been formally passed, a formal sales process will be undertaken by the government. A number of prospective bidders are well prepared for the process to commence, having engaged advisers and secured bank support. It is expected to take 18-months to two years for the sale program to be completed.

The government also has another option available outside of a straight trade sale, and that is an Initial Public Offering (IPO), and it is expected that the government will weigh up the appetite for each funding avenue and then determine best mechanism by which to maximise the return on these assets.

Offshore appetite

A number of offshore parties have already flagged their interest in the assets, particularly pension funds and sovereign wealth funds who have a significant amount of money to invest in long-term stable yielding assets. Australia is still also in the fortunate position of being perceived as possessing a stable regulatory environment, which will be of great benefit to the NSW government when attracting global investment.

Privatisation to provide much needed investment

As Australia grapples with the transition to a non-mining led economy, an injection of investment into infrastructure in NSW has the potential to provide a substantial economic boost, with both private and public sector investment running at historical lows.

In preparation for the financial windfall to be gained by the privatisation of transmission and distribution assets, NSW has a substantial infrastructure investment plan in place, including road works in Sydney and regional areas, new rail lines such as the North West Rail Link, and increased investment in health and education services. These major projects are also expected to generate significant economic and employment activity in the state.

The opportunity for investors to participate in such a significant privatisation project is both rare and unique, and with high demand for these assets already being flagged there will no doubt be significant competitive tension amongst both equity and debt investors in the sector.

Nick Sankey
Managing Director - Utilities
Commonwealth Bank

10 June 2015