Asia Pacific dominates energy deals

24 Jan 2012, 6:51 pm   -   Source: AAP
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A major shift has occurred with the Asia Pacific accounting for the highest number of energy deals last year.

The Asia Pacific now accounts for the greatest number of energy deals globally, positioning Australia well to capitalise on a major world shift in merger and acquisition (M&A) activity, a report finds.

The shift represents the end of European dominance in energy deals and confirms the Asia Pacific as a hub of global activity, PricewaterhouseCoopers' (PwC) annual Power Deals report says.

Australia was well positioned as global power M&A shifts from Europe to Asia, PwC energy utilities and mining industry leader, Mike Happell said on Tuesday.

The second-largest deal in Asia involved the estimated $US1.2 billion ($A1.14 billion) distress sale by Australia's Griffin Energy's administrators of two coal-fired power stations to Kansai Electric Power and Sumitomo Corporation.

"While the power M&A market in Australia was quiet in 2011, the policy structure is now in place - namely a price on carbon - which has created certainty," Mr Happell said.

"(That) could potentially lead to busier times as the economy seeks to reduce its reliance on carbon and owners of affected plants consider their competitive position in the market," he said.

The report found that companies in the Asian region represented more than a quarter of deals globally (27 per cent).

That included 156 companies as a takeover target and 156 as bidders, representing a total value of $US52.9 billion ($A50.36 billion).

The value of deals in North America was highest at $US99.9 billion ($A95.11 billion) involving 110 target deals and 118 as bidder.

With Europe in the economic doldrums and facing further uncertainty, emerging markets centred on the Asia Pacific and South America were stepping up, creating a two-speed world market in global power M&A, the report said.

The biggest deal in Asia was China Three Gorges $US3.5 billion ($A3.33 billion) purchase of a 21.5 per cent stake in Energias de Portugal, giving it access to Brazil's rapidly growing market.

It was the ninth-biggest global deal for 2011, behind the largest merger, a $US37.9 billion ($A36.08 billion) acquisition of US gas pipeline operator El Paso Corp by fellow American energy company Kinder Morgan.

Chinese companies were advancing their go-abroad strategies and any further softening of valuations in Europe will likely reinforce their interest in the European marketplace, helped by favourable exchange rates, the report said.

Europe recorded its lowest share of worldwide power deal value since PwC's first report in 1999.

The total deal value in Europe plummeted 43 per cent or $US30.5 billion ($A29.04 billion) to $US39.8 billion ($A37.89 billion).

However, this fall compared to a $US58.5 billion ($A55.70 billion) increase in value in North America.

Mr Happell said increased difficulty in raising funds from debt markets would lead to utilities seeking strategic partnerships with Chinese-state owned enterprises, hedge funds, superannuation funds or sovereign wealth funds to raise capital.

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