Australian funds snap up Ausgrid for $12.5 bn after China, Hong Kong bids blocked

Top pension funds IFM Investors and AustralianSuper lodged the unsolicited bid for 50.4% of Ausgrid last month

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Australia's biggest electricity grid has been sold to local pension funds for $12.5 billion. A deal sources say consists largely of debt and is much cheaper than bids from China and Hong Kong, which were blocked on security concerns.

The country's top two pension funds, IFM Investors and AustralianSuper lodged the unsolicited bid for 50.4 per cent of Ausgrid in the state of New South Wales (NSW) last month.

The deal, which the bidders have emphasised as "all-Australian", will likely help politicians tamp down a backlash over foreign asset ownership.

The offer for the 99-year lease of Ausgrid, which assumes all of the company's debt, was accepted without significant price negotiation, financial sources familiar with the matter said. There was also no need to compete in a new auction that had been planned after the earlier bids were rejected.

They declined to be identified as they were not authorised to speak to the media on the matter.

The NSW government said that about 10 billion Australian dollar (A$) in debt would be written off through the A$16.2 billion ($12.5 billion) deal, leaving the rest to spend on infrastructure projects. It declined to compare the deal with previous offers.

In August, final bids from State Grid Corp of China and Hong Kong-listed Cheung Kong Infrastructure Holdings Ltd were blocked by the federal treasurer on unspecified security grounds, leading to a rebuke from China which called the move protectionist.

Although terms of those bids were not disclosed, sources said their offers were higher.

Brett Himbury, the CEO of IFM Investors, which invests on behalf of 29 domestic superannuation funds, told Reuters the deal would be completed before the end of the year.

"Not only do we think we got fair value but we've acquired a very high quality critical infrastructure asset," he said.

In November 2015, an international consortium led by Australia's Hastings Funds Management paid A$10.26 billion for state electricity transmitter, TransGrid.