Hong Kong tycoon Li Ka-shing has extended his overseas buying spree and looks set to keep going. On Friday, a consortium including Cheung Kong Infrastructure, Cheung Kong Holdings and Power Assets, agreed to buy Australia’s gas distributor Envestra in a deal that values the latter at A$2.4 billion.
The consortium put in the bid on May 8 and Envestra’s independent directors unanimously recommended the cash offer of A$1.32 on Friday. The consortium beat a rival bid from APA, Envestra's manager and largest shareholder with a 33% stake.
Analysts expect Cheung Kong-related companies to keep buying overseas assets and join hands for bigger acquisitions.
“We expect Cheung Kong Infrastructure and Power Assets to keep looking for assets that fit within their investment strategies, particularly in developed markets with favourable regulations like UK and Australia, and partner when the acquisitions are sizeable," Gloria Lu, an analyst at Standard & Poor's, said.
Last week, Cheung Kong Infrastructure and Cheung Kong Holdings also teamed up to buy a Canadian car park operator for C$397 million ($366 million).
Li Ka-shing-controlled companies have been sniffing around for overseas assets as Hong Kong’s richest man reduces his exposure to Hong Kong and expands his empire overseas -- from Ireland to Australia.
Earlier last week, Hutchison Whampoa’s subsidiary Three received approval from the European Commission to acquire Telefónica O2 business in Ireland. According to news reports, Cheung Kong Infrastructure and Power Assets are among the bidders eyeing Fortum’s Swedish Power Grid and the privatisation of Australia’s New South Wales power grid.
This follows a string of other acquisitions. In 2011, a consortium led by Cheung Infrastructure bought British utility Northumbrian Water Group. Last year, Cheung Kong-controlled companies bought Dutch waste firm RAV Water while CKI bought New Zealand waste management company EnviroWaste for NZ$501 million ($422 million).
Envestra owns about 23,000 km of natural gas distribution networks and 1,100 km of transmission pipelines, serving over 1.2 million consumers in South Australia, Victoria, Queensland, New South Wales and the Northern Territory. The company generates its revenue by charging retailers to transport natural gas through these networks.
CKI first invested in Envestra in 1999 and has a 17.4% stake.
Hong Kong utility companies have been expanding overseas to boost growth. CLP, a rival to Hong Kong Electric, has also made acquisitions in Australia. In 2011 it bought what were then New South Wales state-owned EnergyAustralia's power stations and retail business.
Li Ka-shing-controlled companies have focused on regulated overseas assets, which generate stable returns, as is the case with Envestra, which enjoys a monopoly position as a gas distributor.
"We think the business fundamentals of Envestra are excellent. It is regulated and protected by the regulations and has stable returns," S&P's Lu said.
The Cheung Kong consortium's offer for Envestra is subject to Foreign Investment Review Board approval and conditional upon the bidders getting 50% acceptances.
Goldman Sachs advised Envestra. Citi advised the Cheung Kong consortium.