Australia's APA backs $9.5 billion bid from Hong Kong's CKI as regulatory jitters cap shares

(Reuters) - The board of Australia's APA Group APA.AX has recommended shareholders vote for a A$12.98 billion ($9.45 billion) takeover offer from a consortium led by Hong Kong's CK Infrastructure Holdings Ltd (CKI) 1038.HK at a meeting in late November.

While analysts expect shareholders to approve the deal, APA’s stock was broadly flat after the announcement, trading around 10 percent below the A$11 offer price on concern the regulators may block the deal due to rising gas prices.

“CKI is satisfied with its prospects of obtaining clearance and we are comfortable with the prospects of gaining approvals based on the information available to us,” APA Chairman Michael Fraser told reporters on a conference call on Monday.

The deal would make CKI - part of an empire founded by Hong Kong tycoon Li Ka-shing - the biggest gas pipeline player on Australia’s east coast, giving it more pricing power in a market where gas prices are so high the issue has become political.

Gas prices have soared since the opening of three liquefied natural gas export plants on the east coast, sucking gas out of the domestic market. A consequent rise in utility bills has become a sore point for voters, leaving the government trying to win approval for an energy policy aimed at bringing prices down.

CKI, in a separate statement on Monday, said it is seeking approval from the Australian Competition and Consumer Commission (ACCC) as well as the Foreign Investment Review Board, which is being advised by the Critical Infrastructure Centre.

“CKI is strongly supportive of the Australian government’s energy policy objectives, particularly as they relate to the availability, reliability and affordability of energy for Australian businesses and consumers,” said CKI Deputy Managing Director Andy Hunter.

The recommendation comes after CKI conducted nearly two months of due diligence without changing its offer made in June. That was 33 percent above APA's share price on the eve of the offer, and led APA to open its books to the consortium, which includes CK Asset Holdings Ltd 1113.HK and Power Assets Holdings Ltd 0006.HK.

“We think the offer’s broadly fair, but we’re waiting for the ACCC and Critical Infrastructure review,” said Nick Langley, co-chief executive of RARE Infrastructure, APA’s eighth-largest shareholder.

Last year, CKI received approval for a A$7.4 billion takeover of pipeline owner DUET Group. To minimise competition concern for the APA deal, it has offered to divest all of APA’s pipeline assets in Western Australia, where it has owned the Dampier-to-Bunbury gas pipeline since the DUET takeover.

The competition watchdog began reviewing the deal in June and aims to announce a decision or concerns on Sept. 13.

“These bids are expensive, so you wouldn’t be frivolous with your capital unless you were reasonably confident of finding a way through,” Langley said. “Having said that, (APA) is trading a long way below the terms of the deal, so the market obviously has a different view.”

Reporting by Devika Syamnath in Bengaluru; Editing by Susan Thomas and Paul Tait