Cash seen trumping politics in China Grid bid for German 50hertz

Beijing Enterprises Holdings

26/02/2018 12:02

* SGCC to offer 800 mln-1 bln euro 50Hertz stake-sources 
    * Elia has two months to exercise pre-emption right 
    * Stake too small for Germany to launch in-depth probe 
 
    By Christoph Steitz, Arno Schuetze and Geert De Clercq 
    FRANKFURT/PARIS, Feb 26 (Reuters) - State Grid Corporation 
of China's (SGCC)  STGRD.UL  deep pockets will likely overcome 
any German political resistance to a bid for 20 percent of power 
network firm 50Hertz, industry sources said, the latest sign of 
Chinese interest in the German market. 
    SGCC, the world's largest utility, is in talks with 
Australian infrastructure fund IFM Investors about buying half 
its 40 percent stake in 50Hertz, one of Germany's four 
high-voltage power network operators. 
    Belgian grid operator Elia  ELI.BR , which owns 60 percent 
of 50Hertz, said on Friday it had two months to decide whether 
to exercise a right to buy the 20 percent stake from IFM before 
SGCC can bid.  urn:newsml:reuters.com:*:nL8N1PW4TP 
    But investment banking sources said it was unlikely Elia 
would match SGCC's price, as it already has operational control. 
    SGCC is expected to bid 800 million to 1 billion euros ($990 
million to $1.23 billion) for the 20 percent stake, two people 
familiar with the matter said. That dwarfs the 810 million 
Sweden's Vattenfall  VATN.UL  received when it sold 50Hertz in 
2010. 
    "Given the price, there will not be a counterbid from a 
third party," one of the sources said. "Once Elia takes its 
decision the stake sale will finally go ahead." 
    A second banker said SGCC's price would be so "outrageously 
attractive" that IFM would have no choice but to negotiate a 
sale. 
    IFM is of the world's largest infrastructure investors and 
holds stakes in grids, pipelines, airports, harbours, toll roads 
and energy and water infrastructure in Australia, Europe and the 
North America. 
    SGCC and IFM did not respond to requests for comment. 
     
    OVERTURES 
    SGCC's push underscores China's unabated interest in German 
companies. Carmaker Geely  GEELY.UL  said on Moday it had built 
up a 9.7 percent stake in Daimler  DAIGn.DE .  urn:newsml:reuters.com:*:nL8N1QD5P5 
    SGCC has quietly amassed a networks portfolio in southern 
Europe, buying stakes in Portuguese, Italian and Greek grid 
operators. https://tinyurl.com/yb82okqs 
    But despite discreet overtures, it has yet to get a foot in 
the door in northern Europe, as opportunities are rare and 
Chinese infrastructure investment faces political hurdles. 
    In the German energy industry, China Three Gorges  CYTGP.UL  
bought an offshore wind park and Beijing Enterprise  0392.HK  
acquired energy-from-waste firm EEW. But neither of those 2016 
deals were deemed strategic enough to raise political concerns. 
    Acquisitions by Chinese firms of German technologies and 
infrastructure have rankled in Germany as China protects its own 
firms from foreign bids.  urn:newsml:reuters.com:*:nL8N1K25PB 
    "There must be no sell-off of critical infrastructure," 
Bernd Westphal, Germany's Social Democrats spokesman on 
economics and energy told business daily Handelsblatt this month 
when asked about SGCC's interest in 50Hertz. 
    Under Germany's foreign trade legislation, the state can 
examine cross-border deals if there are concerns about public 
safety or security, but only if the acquisition involves a stake 
in the target entity of at least 25 percent. 
    "The government has no influence on the process, but as 
usual is willing to enter talks if so desired," an Economy 
Ministry spokeswoman said in an e-mailed comment. 
    In the unlikely case Elia does buy out IFM, SGCC could turn 
its sights on 50Hertz peer Amprion, one of the sources said. 
    Amprion is 25.1 percent owned by German utility  RWEG.DE , 
while an investor group around Munich Re  MUVGn.DE , Swiss Life 
 SLHN.S  and Talanx  TLXGn.DE  holds the rest. 
    "The Chinese want to buy everything that is for sale," the 
CEO of French grid giant RTE, Francois Brottes, said this month. 
 urn:newsml:reuters.com:*:nL8N1Q455L 
 
    ($1 = 0.8105 euros) 
     
 
 (Additional reporting by Gernot Heller in Berlin and David 
Stanway in Shanghai; Editing by Edmund Blair) 
 ((mailto:geert.declercq@thomsonreuters.com; +33 14949 5343; 
Reuters Messaging: Twitter: @gvdeclercq)) 
 
Keywords: GERMANY GRIDS/CHINA