Australian toll road stake leads third-quarter sovereign fund deals

LONDON (Reuters) - A $6.7 billion consortium bid for a stake in an Australian toll-road project led deal-making by sovereign investors in the third quarter, although the overall deal value fell by 37 percent as there were no mega-funding rounds for start-ups.

Infrastructure transactions have been thin on the ground for the past few quarters, although the asset class remains a firm favorite with sovereign wealth funds and state pension funds seeking long-term, steady income streams.

Australia has provided some of the best opportunities in the past, and this time a consortium led by Transurban TCL.AX, which included the Canada Pension Plan Investment Board (CPPIB) and an Abu Dhabi Investment Authority (ADIA) subsidiary, bought a 51 percent stake in Sydney's WestConnex motorway project.

“We will see more deals like this,” predicted Javier Capape, director, Sovereign Wealth Research, at IE Business School. “Australia will continue with its privatization plans in order to raise funds to build new infrastructure.”

Another big deal was the $1.7 billion acquisition of oil and gas pipeline operator North Sea Midstream Partners (NSMP) by Kuwait Investment Authority’s Wren House.

Markus Massi, a senior partner at The Boston Consulting Group, said that given higher oil prices, the appetite for longer-term assets had risen: “We have seen an increasing interest in pipelines and oil storage as an investment in the last two months, which is more stable than upstream, for example.”

Saudi Arabia’s Public Investment Fund (PIF) remained active, with an investment of over $1 billion in Lucid Motors, the electric vehicle (EV) maker.

“It’s a wise move to diversify your position – it’s not that surprising as we have seen other SWFs doing the same thing in the ride-hailing sector,” Capape said.

The overall value of the deals in which sovereign investors participated amounted to $19.1 billion, according to Refinitiv data, down from $30.6 billion in the second quarter.

This was mainly because there was no mega-funding round like Ant Financial’s record-setting $14 billion financing in Q2, although there was steady participation by SWFs in tech start-ups, particularly in China.

These included Temasek investing in the Chinese unit of U.S. co-working space provider WeWork, GIC in China’s Luckin Coffee and Australia’s Future Fund in Tuya Smart, a Chinese internet-of-things provider.

Sovereign investors have flocked to Asian start-ups this year in the hope of gaining first-mover advantage.

Capape said it looked as if 2018 would be a record year for SWF participation in tech start-ups, with SoftBank’s SWF-backed Vision Fund, Temasek and GIC all very active.

Reporting by Claire Milhench; Editing by Keith Weir