Australia for sale

 Investment bankers cashing in on Tony Abbott's infrastructure push

Date

Brett Foley

Australian Prime Minister Tony Abbott is turning out to be an investment banker's best friend.

His center-right government is in the midst of an unprecedented push to build public infrastructure -- and to finance the program, regional authorities are busy selling off state assets, creating a boon for bankers just as Australian corporate mergers and acquisitions slow. Banks including Macquarie Group Ltd., Morgan Stanley and UBS AG have been hired to sell everything from ports to electricity grids, data compiled by Bloomberg show.

Advisory fees from the biggest asset sales may reach about $100 million, almost triple the total haul for government-related work last year, estimates Jeffrey Nassof, an analyst at New York-based Freeman & Co.

"The amount of government work that is under way or proposed is without precedent in this market," said Roger Feletto, co-head of advisory firm Greenhill & Co.'s Australian unit in Sydney. "The focus on seeking roles on those government processes is understandable and it's pretty competitive."

Abbott came to power in September 2013, saying he wanted to be "the infrastructure prime minister." Treasurer Joe Hockey has described the push as the biggest since the construction of the Snowy Mountains hydroelectricity project, which began in 1949 and took 25 years to complete.

Private Sector

The asset sales are a way to help pay for projects including new roads in Sydney and Melbourne and fit Abbott's desire to have the private sector assume roles the government traditionally played. The nation's budget deficit, which swelled to $48.5 billion in the year ended June 30, also makes divestments more imperative.

Abbott and Hockey have offered the nation's states and territories incentive payments of 15 per cent of the value of any asset they sell, provided the proceeds go toward investing in new infrastructure.

For bankers, the sales are picking up the slack in a slow period. While deal making is up for the year so far, it eased in the three months ended September 30 to $13.9 billion, the weakest since the first quarter of 2013, according to data compiled by Bloomberg. Concerns about China's slowing economic growth have contributed to the M&A lull.

Since the start of the third quarter, regional governments have hired bankers for more than $60 billion of asset sales -- an amount that, when completed, may outstrip the value of corporate M&A this year.

'Global Attention'

In July, New South Wales appointed Deutsche Bank AG and UBS to advise on the sale of 49 per cent of its electricity networks in a bid to raise more than A$20 billion. Its southern neighbour, Victoria state, in August hired Morgan Stanley and Flagstaff Partners Ltd. to sell a multibillion-dollar lease to the Port of Melbourne. Queensland has appointed advisers for several assets including ports and power plants valued at about A$35 billion, according to Infrastructure Partnerships Australia.

The advisory fees from those deals alone will be equivalent to more than 10 per cent of the total Australia-related M&A commissions in 2014, Freeman estimates.

On October 20, the federal government said it planned to raise as much as $5.5 billion by selling shares in Medibank Private, the country's largest health insurer, in the biggest state divestment through an equity offering since 2006.

"There is no doubt that infrastructure and privatizations will take up a lot of time and heavily drive M&A activity well into 2015 and beyond," Goldman Sachs Group Inc.'s Australian head of M&A Nick Sims said in an interview. "These deals are capturing global attention. The size of the opportunities now in Australia are as big as anywhere else in the world."

Failed Deals

Selling government assets typically carries lower advisory fees than corporate M&A work, according to Freeman. Still, the deals offer one advantage: They are almost certain to be completed, said a banker who asked not to be identified. When a corporate acquisition falls through, bankers who can spend months on it don't get paid.

That risk was underscored by two high-profile Australian deals that collapsed recently, including talks on a $3.4 billion sale of Treasury Wine Estates Ltd. to private-equity investors.

The surge in government work has spurred some firms to add bankers who specialize in infrastructure. Deutsche Bank hired Rothschild's head of infrastructure for Australia, Bruce Macdiarmid, in June. The month before, Rothschild lost another infrastructure banker, Tom Butcher, to Bank of America Corp.

Bulking up infrastructure teams may be called for: banks had to pitch for sale mandates for the Melbourne port and the energy assets in New South Wales within two weeks of each other, according to bankers involved in the bidding.

Busiest Port

Finding buyers for many of the assets shouldn't be too difficult because of their importance to Australia, according to Goldman Sachs' Sims. The Port of Melbourne, for example, is the nation's busiest and handles about 36 per cent of the container trade, according to its website.

The biggest obstacle may be the sheer volume of sales, said Richard Wagner, head of investment banking at Morgan Stanley in Sydney.

"In terms of timing, you certainly want to be first out of the gate if you can be," Wagner said. "You do not want investors having to make decisions about what assets they focus on."

Read more: http://www.smh.com.au/business/the-economy/australia-for-sale-investment-bankers-cashing-in-on-tony-abbotts-infrastructure-push-20141029-11ddcu.html#ixzz3HTuueLWU