Caisse de dépôt et placement du Québec is plowing ahead with plans to build up its infrastructure portfolio, grabbing on to Australia's "poles and wires."
The Caisse said Tuesday evening it would invest $1.15-billion as part of a consortium buying a 99-year lease of an electricity distribution business in the Australian State of New South Wales. The deal, worth $9.9-billion total, would turn operations of the 13,000 kilometres of high-voltage power lines, known as TransGrid, over to the consortium.
These networks are responsible for transporting power from the generators to customers. That means covering wide distances at high voltages and then moving the electricity at lower voltages into cities and urban areas – this network spans a region that includes the major hubs of Sydney and Canberra. The Caisse would have 24.99 per cent stake in the asset.
"It's in continuity with our strategy to grow our infrastructure portfolio," said Macky Tall, senior vice president of infrastructure at the Caisse.
Before the deal, the Caisse had reported an infrastructure portfolio about $12-billion deep, with plans to double its investment in the sector within four years. Those plans coincide with what the Caisse recognizes as "fierce competition [that] leads to higher prices" and decreasing returns as global institutional investors pile in. But the pension fund manager also sees opportunity developed countries need to replace their crumbling bridges and roads, while emerging markets look to build to serve urbanization.
The Caisse was facing tough competition in the bidding contest for TransGrid. The process was formally launched earlier this year and the Caisse jumped in immediately, spending months on due diligence.
Other investors in the consortium include Australian infrastructure investors Spark Infrastructure and Hastings Funds Management, which brought experience managing power networks in the market as well as local ties.
"Those were key factors – being able to benefit from that local expertise," Mr. Tall said. He added that the high regulation in the Australian market is a good feature of the asset because it's transparent and easy for investors to understand.
Privatization of these assets has long been politically charged in New South Wales and the multi-phase process has been continuing for years. The New South Wales government is in the process of privatizing many major infrastructure assets around the state and recycling the funds into building new infrastructure.
Two other Middle Eastern investors also contributed capital in this deal: Tawreed Investments Ltd., a subsidiary of the Abu Dhabi Investment Authority, and Wren House Infrastructure Management, which is part of the Kuwait Investment Authority.
The Caisse and its partners would be responsible for continuity of service to customers and investing in upgrades, integrating additional customers and repairing the network over time.
The Caisse said its other Australia assets had provided the base to work on this latest deal. The pension fund acquired a 26.7-per-cent stake in the Port of Brisbane, the largest general cargo port in Australia's Queensland area, in 2013. The fund is also a player in seven other public-private-partnerships, such as a hospital an convention centre, with a partner.