* Winning bid was higher-than-expected 27 times earnings
* Hastings and China Merchants equal partners in the bid
* Australian infrastructure assets in hot demand (Recasts and adds details of the bid)
By Swati Pandey
SYDNEY, April 30 (Reuters) - Hastings Funds Management and China Merchants Group have won a state government auction for a 98-year lease on Australia's Port of Newcastle, the world's biggest coal export terminal, paying a higher-than-expected A$1.75 billion ($1.6 billion).
An initial New South Wales state budget plan had valued the lease on the port terminal at A$700 million, but fierce competition for Australian infrastructure assets coming on to market has seen a steady rise in multiples paid.
The winning bid for Newcastle port came in at 27 times earnings, matching the 27 times earnings Transurban Group, Australia's biggest toll road owner, paid last week for a Queensland state toll road firm.
That compares with multiples of 25 times earnings in a A$5.07 billion deal for 99-year leases for Port Botany and Port Kembla that was won by Industry Funds Management last year.
Local media have reported that other bidders for Newcastle port included Hong Kong-listed Cheung Kong Infrastructure , a consortium of New York-based Global Infrastructure Partners and Deutsche Asset & Wealth management, Macquarie and its partner China Construction, as well as a one from ATEC Rail Group and fund manager TIAA-CREFF.
"It was an incredibly competitive field," State premier Mike Baird told a news conference.
Hastings, an Australian firm with A$7.4 billion in funds under management, and state-backed China Merchants were equal partners in the bid, according to a statement from the Premier's office.
Hastings has a portfolio of utilities, airports, toll roads and ports in Australia, Britain, Europe and the United States. It was a partner in winning bids for a Sydney desalination plant last year and Cairns and Mackay Airports in 2008.
China Merchants, which owns a wide range of transportation, finance and property assets, had A$819 billion assets under management as of end-December.
A record 142.64 million tonnes of coal was exported in 2012/13 from Port of Newcastle, up 17 percent from a year earlier, according to its annual report.
At end-June 2013, the port had a net profit of nearly A$23 million and net cash flow from operating activities of A$27 million.
Infrastructure assets such as toll roads, power stations and ports are in hot demand from investors for their stable, long-run returns and tough barriers to competition.
Australia's state governments, once hesitant to give up tax revenue by selling infrastructure, have had a change of heart since New South Wales sold its desalination plant for $2.3 billion in 2012.
The federal government said last month it would pay states to sell assets as treasurers across jurisdictions agreed to do more to lure local and overseas investors to take a slice of an estimated A$100 billion in infrastructure.
The proceeds from the sale of Newcastle port will be invested to build infrastructure in the state with 30 percent directed towards projects in rural and regional areas. ($1=1.0789 Australian Dollars) (Additional reporting by Jane Wardell; Editing by Edwina Gibbs)