State Grid Corp of China, the world’s largest state utility, has agreed to buy large stakes in Australian power companies from Singapore’s Temasek Holdings in a deal that could be worth over $5 billion, as it searches overseas for higher-yielding assets.

State Grid will buy 19.9 per cent of electricity supplier SP Ausnet for $824 million, and 60 per cent of energy infrastructure company SPI (Australia) Assets Pty Ltd (SPIAA) for an undisclosed amount, Temasek unit Singapore Power said today.

The deal may signal a retreat by Singaporean state-linked firms from Australia, where they have spent billions of dollars over the past few years on telecoms, energy and real estate assets, leaving room for the acquisitive State Grid.

“The proposed investments by State Grid are two of the most significant power asset deals in Australia. They reflect the strength of the Australian power sector, and in particular the attractiveness to investors of a transparent and stable regulatory regime,” said Anna Collyer of Allens law firm, which along with Linklaters advised State Grid on the deal.

SP AusNet, listed in Australia and Singapore, held assets worth $10 billion as at end-March 2013. SPIAA, which uses the trading name Jemena and owns electricity and gas distribution networks, has assets of around $8.9 billion, according to Allens and Linklaters.

The Australian Financial Review estimates the two deals are worth over $5 billion.

China’s cash-rich power groups have been scooping up overseas assets in recent years to offset their low-yielding domestic operations. State Grid, ranked seventh on the Fortune Global 500 list in 2012 with revenue of approximately $US300 billion, has already established a presence in Australia, the Philippines, Brazil and Portugal.

State Grid is also interested in acquiring a stake in New Zealand’s second-biggest electricity and gas distributor Powerco Ltd, according to a source with knowledge of the matter.

In other signs of Singapore’s withdrawal from Australia, Singapore Telecommunications is mulling the potential sale of its Optus Satellite business in a deal that could be worth at least $2 billion. CapitaLand Limited , meanwhile, is undertaking a strategic review of its $1 billion stake in Australand Property Group.

Credit Suisse Group and Lazard advised Singapore Power while Goldman Sachs and Macquarie Group advised the Chinese group.

SP AusNet, listed in Australia and Singapore, owns and operates electricity and gas distribution assets in Australia’s southeastern Victoria state, including the state-wide electricity transmission network.

Singapore Power said it would continue to hold a 31.1 per cent stake in SP AusNet, which would remain publicly listed. An SP Ausnet representative declined to comment beyond what was said in the company’s press release.

SP AusNet’s Australia-listed shares climbed almost 2 per cent to $1.30 on Friday, having gained more than 17 per cent this year.

Both transactions announced on Friday are subject to approvals from Australia’s Foreign Investment Review Board (FIRB), the Australian Competition and Consumer Commission, and China’s National Development and Reform Commission.

The FIRB examines all investment from state enterprises to make sure they are genuine commercial deals and are in line with Australia’s national interests. An approval in this case would likely as the assets were already foreign-held.

State Grid late last year bought a 41 per cent stake in the unlisted South Australian electricity supplier ElectraNet from the Queensland state government’s Powerlink.

Henry Sapiecha

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