​​CK Infrastructure offers undertakings as Australian regulator reviews APA Group bid

29 August 2018 3:25pm

30 July 2018. By James Panichi.

A multi-billion dollar offer for Australian natural-gas infrastructure company APA Group from a consortium led by Hong-Kong’s CK Infrastructure has prompted Australia’s competition watchdog to examine whether the deal could lead to price increases in the markets for gas transmission, storage and distribution.

The proposed acquisition, worth A$13 billion ($9.9 billion), also prompted the Australian Competition & Consumer Commission, or ACCC, to query whether access to gas-transmission services may be affected, along with future competitive processes in the construction of pipelines.

The ACCC’s market inquiries letter, published last month, is asking for industry feedback on the unsolicited acquisition proposal. The document also reveals a number of undertakings on the part of the consortium to allay possible competition concerns.

The group of investors, referred to as the CK Consortium, is made up of CK Infrastructure Holding, or CKI, CK Asset Holdings, or CKA, and Power Assets Holdings, or PAH.

CKI is a public infrastructure company with investments in energy, transportation and water infrastructure, as well as waste management and household infrastructure. CKI is the largest overseas infrastructure investor in Australia.

The Cayman-Islands registered CKA invests in property development, hotels, infrastructure and aircraft leasing. It is part-owned by the Li family trust of businessman Li Ka-shing. PAH is owned by CK Hutchison Group, a Hong-Kong based multinational conglomerate.

The target of the proposed acquisition, APA, is listed on the Australian Securities Exchange and is a major owner and operator of natural-gas transportation and energy infrastructure across Australia.

APA’s assets include gas storage, transmission and processing infrastructure, as well as gas-fired and renewable energy-power generation businesses located across Australia. It also provides asset-management services for its own energy investments and third parties, including the consortium.

On June 13, APA announced it had received an “unsolicited, indicative non-binding proposal” from the consortium to acquire all of APA’s assets. The statement to company shareholders said APA would undertake due diligence on the offer.

“There is no certainty that the consortium proposal will result in a transaction or, indeed, whether other offers will be made to acquire APA,” the company said in its statement to the ASX.

When calling for submissions as part of its review of the deal, the ACCC also revealed that CK Consortium had submitted an undertaking to address possible competition concerns, which would require the company to divest a number of assets in the state of Western Australia.

“The ACCC has…not yet formed a view as to whether any competition concerns are capable of being addressed by the proposed undertaking or any other possible remedy,” the regulator’s market inquiries letter says.

The undertakings include the divestiture of gas pipelines and storage facilities in Western Australia, as well as the transfer of personnel to conduct the divestiture and the appointment of an independent auditor to report on compliance with the undertaking.

The ACCC said it needed to ascertain whether the proposed undertakings were necessary and, if so, whether they effectively addressed competition concerns that may arise in Western Australia as a result of the deal. The regulator also called for submissions on whether there are other “areas of competitive overlap.”

ABA 2019