Australian Government blocks takeover of leading pipeline operator

16 November 2018

 APA CEO Mick McCormack with Josh Frydenberg at the opening of the company’s Integrated Operations Centre in 2016.

Australia’s Federal Government is set to reject a bid by a Chinese consortium to acquire the country’s biggest pipeline operator.

The decision comes after APA Group’s board recommended shareholders accept CK Consortium’s offer, which values the company at AU$13 billion (US$9.39 billion).

APA is one of Australia’s largest pipeline operators, controlling 15,000 km of natural gas pipelines across Australia, in addition to gas storage facilities, gas-fired power stations and renewable energy generation.

In June, the CK Consortium, led by CK Infrastructure Holdings (CKI) in addition to CK Asset Holdings (CKA) and Power Asset Holdings (PAH), lodged a AU$13 billion (US$9.39 billion) takeover bid for the company.

Based in Hong Kong, CKI already has an existing interest in pipeline infrastructure in Australia, through its role in another consortium – along with CKA, PAH and CK Hutchison Holdings – that owns the Australian Gas Infrastructure Group (AGIG).

   Victor Li

AGIG owns approximately 23,000 km of natural gas distribution networks and more than 3,000 km of transmission pipelines throughout the country.

In August, APA subsequently accepted CK Consortium’s offer for the company.

Despite the approval from APA, the acquisition still had to gain regulatory approval from two government bodies: the Australian Competition and Consumer Commission (ACCC) and the Foreign Investment Review Board (FIRB).

ACCC promotes competition and fair trade in markets to benefit consumers, businesses, and the community, while also regulating national infrastructure services.

FIRB is a non-statutory body established in 1976 to advise the Australian Treasurer, currently Josh Frydenberg, and the government on Australia’s foreign investment policy and its administration.

In September, ACCC decided not to oppose the consortium’s takeover offer.

ACCC Chair Rod Sims said the acquisition created concerns over competition, but that CK Consortium’s undertaking to sell a significant portion of APA’s portfolio addressed the issue.

“The ACCC conclude that, in the absence of the undertaking, the proposed acquisition was likely to substantially lessen competition,” he said.

“The ACCC was concerned about the removal of the CK Consortium as a competitor in relation to new pipeline development.

“The undertaking addresses these concerns and creates an opportunity for a new operator to acquire a valuable set of assets, together with the personnel needed to operate and manage the assets.”

FIBR approval was always considered the biggest hurdle of the agreement, which was confirmed earlier this month when Mr Frydenberg announced, in his preliminary view, the Hong-Kong based group’s proposed takeover “would be contrary to the national interest”.

“I have formed this view on the grounds that it would result in an undue concentration of foreign ownership by a single company group in our most significant gas transmission business,” he said.

“The FIRB was unable to reach a unanimous recommendation, expressing its concerns about aggregation and the national interest implications of such a dominant foreign player in the gas and electricity sectors over the longer term.”

The treasurer was complimentary of the CK Consortium, saying his view was based around keeping Australian gas assets under domestic ownership.

“My preliminary view is not an adverse reflection on CK Group or the individual companies,” he said.

“The Australian Government welcomes CK Group’s investments in Australia and its broader contribution to the Australian economy. My preliminary view reflects the size and significance of APA Group.”

Mr Frydenberg’s final decision is expected before the end of November.