February 26, 2018 / 12:14 PM / 25 days ago

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

FRANKFURT/PARIS (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.

FILE PHOTO: Staff members walk into a wind and solar energy storage and transmission power station of State Grid Corporation of China, in Zhangjiakou of Hebei province, China, in this March 18, 2016 file picture. REUTERS/Jason Lee/Files

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.

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, harbors, toll roads and energy and water infrastructure in Australia, Europe and the North America.

SGCC and IFM did not respond to requests for comment.


SGCC’s push underscores China’s unabated interest in German companies. Carmaker Geely [GEELY.UL] said on Monday it had built up a 9.7 percent stake in Daimler (DAIGn.DE).

SGCC has quietly amassed a networks portfolio in southern Europe, buying stakes in Portuguese, Italian and Greek grid operators. 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.

    “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.

    Additional reporting by Gernot Heller in Berlin and David Stanway in Shanghai; Editing by Edmund Blair

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