Brookfield Asia-Pacific chief Stewart Upson says the private equity firm’s $18.4 billion bid for Origin Energy will enable the company to escape a “catch 22” and navigate the energy transition quicker than if it remained a publicly listed entity.
Mr Upson told The Australian Financial Review Infrastructure Summit on Monday that Origin would face significant difficulties in funding its transition without access to private capital due to shareholders’ laser-focus on dividend yields.
“Any company in this space that is listed, and is in a situation where they have a serious transition task, has a challenge because they are traditionally dividend yield stocks,” he said.
“Yet, they now have this huge capital requirement, generally because they have to have this transition, they tend to have high emissions ... they are in this real catch 22.
Mr Upson said private capital “takes this one issue away”, but he did not shy away from the fact there would be other challenges in transitioning Origin into a greener company.
Comparing Origin to AGL Energy – at which Brookfield had an ill-fated run at with tech billionaire Mike Cannon-Brookes earlier this year – Mr Upson said the companies were in “very different” phases of their transition.
“AGL has a large fleet of coal-fired generation, which obviously needs to transition at some point,” he said.“[AGL] has been further behind in its own internal framework as to when that transition will occur.
Whereas Origin has been more on the front foot and has a detailed strategic transition plan.
“[Origin] has a very large lead on gas. We can get off to a running start and deploy capital quickly.
”Brookfield, partnering with US-based partner EIG, lobbed its $9 per share bid for Origin on November 10, promising to put to use a $20 billion war chest to boost the speed of its transition.The bidding partners plan to split Origin, with Brookfield taking the core electricity and gas retailing and supply business, and EIG’s specialist LNG company MidOcean Energy taking a 27.5 per cent stake in Australia Pacific LNG.
Transition needs ‘lots of capital’Origin’s board has said it plans to recommend shareholders accept the offer if it is formalised after due diligence, but the deal is still subject to both Foreign Investment Review Board and Australian Competition and Consumer Commission approvals.
Asked about the ACCC process, Mr Upson said: “We’re in the middle of the due diligence process and that will take a number of weeks.“We’ve got to let that run its course and if we get to the end of that successfully, then we will sign a binding agreement.
The ACCC process will run parallel with that, and that’s all the information we have.”He said the energy transition was a “huge task” for Australia, and to achieve the legislated emissions reduction target of 43 per cent below 2005 levels by 2030 and net zero by 2050, “it’s going to require a lot of capital”.
Mr Upson was speaking on a panel about infrastructure investment amid runaway inflation with Global Infrastructure Partners Australia managing director Rob Stewart, Wilson Asset Management portfolio manager Dania Zinurova, and AustralianSuper infrastructure head Nik Kemp.
Mr Kemp said the superannuation fund had deployed some $7 billion on infrastructure deals in 2021, but this had “scaled right back” this year.
“We are digesting some of the things that we invested, and it’s harder to pick value at the moment. That doesn’t mean it is not there, but it is much harder to pick.
”He said it was beneficial to have “quite a broad ability to try different parts of the capital structure” as central banks lift interest rates quickly to fight runaway inflation.
“It’s probably a lot more interesting to be an infrastructure investor than two or three years ago ... there wasn’t the divergence [in opportunities],” Mr Kemp said.
Mr Stewart, meanwhile, backed in GIP’s investment in liquified natural gas projects.
In Australia, GIP has invested alongside Shell and Woodside in a variety of gas projects, including the Scarborough-Pluto gas project, which climate activists say will emit almost 1.4 billion tonnes of greenhouse gas emissions over its lifetime.
Mr Stewart reaffirmed the firm’s belief that gas was a key transition fuel.
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