Macquarie Generation deal heralds big year for Australian asset sales

SYDNEY Mon Feb 3, 2014 8:45pm EST

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SYDNEY (Reuters) - The sale of power firm Macquarie Generation heralds the start of a busy year for Australian privatizations, as strong demand for high-quality assets coincides with tight government budgets and a need for major infrastructure spending.

AGL Energy Ltd (AGK.AX), Japan's Marubeni Corp (8002.T) and ERM Power Ltd (EPW.AX) are expected to submit final bids for New South Wales (NSW) state's largest power generator, due by Wednesday, people familiar with the process said.

With a book value of about A$2 billion ($1.76 billion), Macquarie Generation's sale is being closely watched by other state governments with billions of dollars worth of potential deals up their sleeves.

"The other states are all watching to see how each other are divesting, and whether there is a lot of appetite or whether particular assets don't seem to be that attractive," said Robert Clarke, a partner at law firm Corrs Chambers Westgarth who focuses on infrastructure deals.

A banking source familiar with Australian infrastructure sales said Macquarie Generation's privatization could stimulate more deals. "There are obviously multiple bidders looking at Macquarie, and that in itself will encourage Queensland and potentially Western Australia to sell," the source said.

Australia's burgeoning population - which could more than double to 48 million by 2061 according to official projections - and the end of a mining investment boom are forcing governments to look at everything from new railways to ports and utilities.

Industry forecasts show the infrastructure deficit could be as high as A$700 billion, or up to 50 percent of GDP, over the next four decades, so federal Treasurer Joe Hockey is encouraging states to consider selling some of their old silverware to fund the projects of the future.

"There is an enormous requirement for new infrastructure investment and there is zero capacity in those states' budgets to be able to fund it," said Brendan Lyon, chief executive of Infrastructure Partnerships Australia.

With its two coal-fired plants accounting for about a quarter of NSW's generation capacity, bankers expect Macquarie Generation to draw a final bid price of about A$1.5 billion.

The NSW government says some of the proceeds will go towards an A$11.5 billion motorway scheme to ease traffic congestion in Sydney's sprawling western suburbs.

AUSTRALIA FOR SALE

The value of commercial infrastructure assets held by Australian states and suitable for sale is over A$100 billion and much of it could be privatized relatively quickly, according to an analysis by federal government body Infrastructure Australia.

Foreign and domestic investors have their checkbooks open, thanks to the country's stable economy and expectations of steady returns.

"These are by-and-large very good, very well regulated core- or core-plus assets," Lyon said.

Last year, the NSW government sold the long-term leases on two major ports - Port Botany and Port Kembla - to a consortium led by Industry Funds Management for A$5.07 billion.

The state also has received multiple expressions of interest for a 99-year lease to operate Port of Newcastle, the world's biggest coal export terminal, for an estimated A$700 million. That deal is expected to be finalized by mid-2014, a NSW Treasury spokeswoman said. Macquarie Infrastructure Fund and Marubeni are among the potential bidders, Australian media reported.

Further north, the Queensland state government has put its Brisbane metropolitan area toll roads on sale, which might raise more than A$4 billion.

Hastings Funds Management, CP2, Transurban Group (TCL.AX) and IFM Investors are preparing their indicative bids, which are due Friday, a source close to the deal said.

In Western Australia, Treasurer Troy Buswell last year said assets in state-owned ports could be sold after the state government lost its AAA credit rating due to climbing debt.

In addition to state assets, the federal government is mulling the sale of Medibank Private, Australia's biggest private insurer, which could be worth up to A$4 billion.

Australia Post has also been tipped for possible privatization but it is politically sensitive and unlikely in this term of government. ($1 = 1.1461 Australian dollars)

(Editing by Stephen Coates)

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