As the owner of Loy Yang B and its adviser, Rothschild, start assessing bids for the coal-fired power station, the sale has taken an interesting twist, with China Resources emerging as a potential bidder.
Should the Chinese government-owned company outbid other private equity and local rivals, the situation is expected to prove an interesting test for Foreign Investment Review Board approval with respect to Chinese groups being allowed to own assets such as Loy Yang B at a time when the prospect of electricity shortages remains high on the political agenda.
The competition for the asset, owned by Engie and Mitsui, is now in the second round and it appears most parties eager to buy the asset have been permitted to advance in the contest.
Kohlberg Kravis Roberts appears to have fallen away, while private equity firm Pacific Equity Partners is not progressing.
That leaves Alinta (owned by Chow Tai Fook out of Hong Kong), Blackstone, Denham Capital, Trevor St Baker’s Delta Energy, China Resources and potentially another Chinese party.
While sources say obtaining FIRB approval may not be impossible for China Resources, it appeared the review board was taking a tougher stance on state-owned enterprises owning Australian assets such as critical infrastructure.
Both China’s State Grid, along with Cheung Kong Infrastructure, were blocked from buying electricity distribution company Ausgrid by FIRB, while Chinese buyers were also unable to get foreign investment approval to buy one of Australia’s largest pastoral holding companies, S. Kidman & Co.
Engie and Mitsui’s Loy Yang B power station is in Victoria’s Latrobe Valley, about 160km east of Melbourne.
It generates 953 megawatts or about 17 per cent of the state’s energy needs, fired by brown coal from the adjacent Loy Yang open-cut mine.
Opportunistic buyers are interested because the power station is not contracted to any one party and its power will probably remain in demand following the closure of the nearby Hazelwood coal-fired power station.
It is thought the asset could sell for more than $1 billion, although one sticking point are the remediation costs the owner will be liable to pay for the closure of Loy Yang A.
Separately, Downer’s share of Spotless reached about 33 per cent on Friday, which was to be the deadline for investors to accept its offer.
The offer period will now be extended.
Some now question whether Spotless directors, who rejected the bid, could change their stance in the days ahead, turning around to recommend the $1.26bn cash offer as more of its shareholders offer it support.
By BRIDGET CARTER AND SCOTT MURDOCH