Funds' appetite for ports, railways to stoke Australia M&A fervor

By Markets Reuters

Blockbuster buyouts of ports and electricity networks are poised to drive Australia M&As in 2016 from four-year highs of $146 billion hit last year, as wealthy global investors seek steady yields amid shaky commodity and share markets.

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Investment bankers predict that offerings of well-tested government assets and cheap money will lure conservative-minded long-term investors into deals, even as a sputtering Chinese economy hits demand for Australia's natural resources.

Pension funds such as the Canadian Pension Plan Investment Board and sovereign wealth funds such as China Investment Corp, the Abu Dhabi Investment Authority and the Kuwait Investment Authority have already invested in Australian assets and could be prominent players in the new government sales.

"There's a massive amount of money looking for yield," said Geoff Rasmussen, managing director of Azure Capital, which helped telecom iiNet sell for $1.2 billion in 2015 and earned the 10th highest mergers and acquisitions (M&A) advisory fees for the year, Thomson Reuters data shows.

"Bank deposits and fixed income opportunities are so low-margin that people have turned to infrastructure as an alternative."

Australia's biggest deal of 2015 - and its biggest non-IPO privatization ever - was a $7.4 billion electricity network sold by New South Wales state to a consortium two-thirds owned by Middle East sovereign funds and a Canadian pension fund.

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But that is likely to be eclipsed early in 2016 by a second electricity network being sold by the same state. This second asset was worth 20 percent more than the first asset, according to a February 2015 sale briefing document seen by Reuters.

The New South Wales government and the pension and sovereign funds did not immediately respond to emailed requests for comment.

Neighboring Victoria and Western Australia states are selling some of the country's busiest ports, while the federal government is expected to raise up to $4 billion for the securities regulator's corporate registry business.

RESTRUCTURING

Last year also was a record year for inbound deals for Australia, as North American investors, in particular, raised their exposure.

Nick Sims, local head of M&A at Goldman Sachs, which placed third for advisory fees in 2015, said in an email that buyouts originating from North America accounted for 21 percent of inbound activity in 2015 compared to 8 percent the previous year. Australian businesses offered a "pathway to Asia," Sims said.

Companies which have relied on outsourcing by the mining industry are, meanwhile, expected to explore takeover prospects as a way to cut overheads, plug revenue gaps and improve their survival chances as a two-decade minerals boom grinds to a halt.

Already some companies with mining industry exposure are targets: rail freight giant Asciano is the object of a $6.5 billion takeover battle between Canada's Brookfield Asset Management and local port operator Qube Holdings .

Former mining services firm Broadspectrum is fending off a cut-price offer from Spain's Ferrovial as it shifts its focus to government contracts.

"We'll likely see more activity across the resources space but it will be more restructuring in nature than strategic M&A," said Aidan Allen, head of investment banking at Citi, which ranked fourth for advisory fees in 2015 and is advising Brookfield's Asciano offer.

(Reporting by Byron Kaye; Editing by Muralikumar Anantharaman)