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Powerco could have been a prime candidate for Cullen Fund

Shoeshine can’t help thinking that energy distributor Powerco would have made a perfect starting point for John Key’s “Dancing Cossacks” plan for the Cullen Fund.

While NBR doesn’t exactly endorse some of the more extreme amendments to the fund that Key is proposing, not least the potential for political meddling, the concept of investing in local infrastructure and the odd utility makes good sense.

There is a case to be made for the Super Fund to be more aggressive in terms of getting involved in New Zealand assets.

So when Babcock & Brown Infrastructure announced yesterday it was selling its 50% stake to QIC Infrastructure – which manages superannuation funds – Shoeshine couldn’t help but wonder whether our own Super Fund should have been in the frame too.

If Powerco is good enough for an Australian institution, surely it’s a good enough asset for the Super Fund, which right now is returning not much more than the government bond rate.

By all accounts Powerco would have been a good buy.

QIC is paying $400 million for BBI’s stake, in a deal that values Powerco at $2.05 billion.

Try as it might, Babcock can’t hide the fact that QIC got a bargain.

The sale price, which doesn’t factor in Powerco’s Tasmanian gas distribution business that BBI is keeping, implies a multiple of 9.3 times Powerco’s $220.1 million ebitda.

Four years ago BBI – then known as Prime Infrastructure – paid 10 times Powerco’s then $180 million ebitda for its stake.

To be fair, the current market is not exactly buoyant. If it were, then BBI probably would have sold all of Powerco. It’s understood there were trade buyers interested in the asset.

Powerco has solid cashflow and is operating in an environment with strong growth prospects. There’s no foreign currency exposure so it’s hard to think of a better local asset that would fit the criteria for the Super Fund.

So in some circumstances the restriction of being only able to invest in 10% of a company is silly.

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