Fund manager Queensland Investment Corp has bulked up its ownership of gas assets, by agreeing to pay $1.78 billion for Iona, an underground gas storage facility located near Port Campbell in western Victoria.
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The deal comes less than a week after the competition watchdog, the Australian Competition and Consumer Commission, publicly signalled it had concerns if the largest owner of gas infrastructure assets, APA, was to acquire the facility.
The deal also comes less than a year after QIC lost out to APA in the bidding for a Queensland gas pipeline owned by British Gas, which APA bought for $6 billion.
Even so, the purchase of Iona significantly strengthens QIC's position in the domestic gas market since, in 2013, QIC paid $400 million for the Moomba to Adelaide pipeline. QIC said it intends to manage and operate these two facilities separately
"The global infrastructure fund targets a return of 10-12 per cent and a yield of 5 per cent," Matina Papathanasiou, the deputy head of the QIC global infrastructure, said."We would like more [gas] assets."
QIC has $6.6 billion under management with 10 direct investments globally. In early 2014 it sold Queensland Motorways for more than $7 billion to a consortium led by Transurban.
QIC said its global infrastructure fund along with existing clients have agreed to buy the gas storage unit, which it said "provides essential storage facilities to domestic integrated utilities to service intermediate and peak gas demand".
As the largest gas storage facility in south-eastern Australia, Iona helps gas retailers to smooth out their gas supply needs.
Iona was sold by EnergyAustralia which is a unit of China Light and Power. Earlier, China Light and Power had sought to sell down its controlling interest in EnergyAustralia, although the downturn in energy markets frustrated those plans.
Less than a week ago the ACCC signalled competition concerns if APA succeeded in gaining control of Iona. In particular, the ACCC was concerned that further investment by APA in Victoria's gas pipeline network "would be distorted if APA took ownership of Iona".
In particularly the ACCC was worried that controlling Iona would give APA access to much more information across key aspects of the industry which would put the company in a stronger position "to increase transmission and storage charges as compared to an alternative acquirer of Iona".
"The same access to information may also place APA in an advantageous position compared to other market participants competing for the development of pipeline augmentations.
"The addition of Iona to APA's infrastructure portfolio may also increase the ability and incentive for APA to leverage its existing strong position in gas pipelines into other markets, such as gas storage or into the development of new pipelines."
The deal comes as the ACCC has been reviewing the level of competition in the gas market, amid concerns that pipeline owners and large gas owners are unfairly controlling key aspects of the market.
Iona earned a pre-tax profit of $45.8 million in 2014, up from $39.3 million, indicating QIC paid a multiple of 40 times the pre-tax profit.
The Iona facility can supply up to 500 terajoules of gas a day. Gas storage facilities enable gas suppliers to store gas during periods of low demand to keep up with demand at times of high demand.
