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Hong Kong family-owned Chow Tai Fook agrees to buy Alinta Energy

Thursday, March 16, 2017 - 09:53

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Chow Tai Fook Enterprises Ltd agreed to acquire Alinta Energy Holdings Ltd in a multi-billion dollar deal that marks the family-owned group's foray into Australian utilities.

[MELBOURNE] Chow Tai Fook Enterprises Ltd, the Hong Kong conglomerate known for its chain of jewelry shops in China, agreed to acquire Alinta Energy Holdings Ltd in a multi-billion dollar deal that marks the family-owned group's foray into Australian utilities.

The companies announced the transaction in separate statements on Thursday, without giving financial details. The Cheng family's Chow Tai Fook agreed to pay investors including buyout firm TPG Capital more than A$4 billion (S$4.28 billion), people with knowledge of the matter said, asking not to be identified because the details are private. Alinta's assets span nationwide energy retailing through power generation for industrial customers.

The transaction is Chow Tai Fook's most ambitious overseas expansion recently. The Cheng family controls a group that operates one of Hong Kong's biggest property developers, runs the Carlyle Hotel in New York City and operates a chain of jewelry stores that generates about 80 per cent more revenue than Tiffany & Co. Today, the family has four listed companies with a total market value of more than US$25 billion.

Chow Tai Fook follows in the footsteps of another Hong Kong group, billionaire Li Ka Shing's Cheung Kong Property Holdings Ltd, in scouring Australia for assets. Asia's third-richest man won shareholder approval this week to pursue the A$7.4 billion purchase of power provider Duet Group that would give his companies access to an energy network covering an area three times the size of Hong Kong.

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"Alinta Energy would be Chow Tai Fook Enterprises' first significant investment in Australia outside of real estate and integrated resorts," the Hong Kong company said in its statement.

Last year, the conglomerate acquired a luxury Bahamas resort that was slated to open this year with a casino, hotel and golf course.

In selling to Chow Tai Fook, Alinta's owners have abandoned a plan to sell the Australian company through an initial public offering this year. The IPO was delayed last year due to market volatility following the US election. TPG and more than 30 lenders, including Oaktree Capital Group LLC, had taken control of Alinta as part of a debt-for-equity swap.

The sale comes at a tense time in Australia as the government battles an increase in power failures and surge in wholesale gas prices that has put pressure on energy markets. Prime Minister Malcolm Turnbull has directed utilities to increase the amount of gas available for domestic supply and warned the government could restrict oil and gas exports if companies fail to comply.

Foreign investment also remains a sensitive issue after Treasurer Scott Morrison barred separate bids for state-owned power network Ausgrid last year from Mr Li and China's State Grid Corp. Both Alinta and Duet transactions would be subject to approval by Australia's Foreign Investment Review Board.

"It will get a much more forensic examination than used to be the case," Peter Jennings, executive director of the Australian Strategic Policy Institute, said in an interview.

"We are talking about an area that has a much higher area of sensitivity than has been the case in the past."

Jeff Dimery will continue as Alinta's chief executive officer and the existing senior management team will also be retained, the Australian company said.

For Chow Tai Fook, whose portfolio includes property arm New World Development Co, the deal represents an attempt to go beyond Greater China as higher land costs in Hong Kong are poised to squeeze profit margins for developers.

"It's obvious they want to diversify their business, with the core property business no longer guaranteed a high return like in the past," said Castor Pang, head of research at Core-Pacific Yamaichi HK.

"The Cheng family isn't the only one doing it."

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