Australian infrastructure firm SP Ausnet pulled out of a plan to pay A$8.3 billion (US$7.3 billion) for assets of former energy firm Alinta, blaming a downturn in capital markets, sending its shares up 9 percent on Monday.
SP Ausnet had planned to buy the east coast power line and gas pipeline networks from its state-owned parent Singapore Power, which bought them in August, but called off a shareholder vote on the deal due on Tuesday.
It said the ongoing deterioration in capital markets would have had a material impact on the proposed deal, including its ability to hit forecasts.
"In more normalized markets maybe this deal did make sense," said Andrew Chambers, infrastructure analyst at Austock. "Our simple message is: Singapore Power paid top of the market for these assets, and SP Ausnet were going to buy them at top of the market prices, but issuing equity and debt at bottom of the market levels."
SP Ausnet shares shares, which had fallen nearly a fifth this financial year, jumped as much as 9.2 percent.
A successful acquisition would have transformed SP Ausnet into Australia's largest energy transmission company, but the deal had attracted criticism from analysts because of its size and cost.
"Had the capital market conditions been more favorable for raising fresh debt and equity capital, the board would have proceeded to the security holder vote," SP AusNet Chairman Ng Kee Choe said in a statement.
The company said early last month it planned to raise about A$3 billion in a share placement to help fund the deal.
"We understand that because of unfavorable conditions in the equity market they were going to have to do the raising below A$1.20, which is what the guidance was assumed on," said Chambers.
"What that meant was the (earnings) numbers were going to have to be potentially revised down," harming the chances of a successful shareholder vote," he said.
Melbourne-based SP Ausnet, which is also listed in Singapore, owns and operates power transmission networks in Victoria state.
It reaffirmed recent forecasts for its existing business for 2007/08 and 2008/09, and maintained its 2007/08 full-year distribution guidance of 11.55 Australian cents per security.
Alinta, previously Australia's largest energy infrastructure firm, was acquired and carved up by a consortium of investment firm Babcock & Brown and Singapore Power in August.
Singapore Power CFO Yap Chee Keong said SingPower would hold on to its Alinta assets for the time being. This meant refinancing bridging loans with international and local bonds when the loans become due or when debt capital markets were more stable.
"We don't see any issue in raising the debt ... SingPower is financially very strong and we have always been active in the debt capital markets internationally, regionally and locally."
Singapore Power, a wholly owned unit of state investor Temasek Holdings, is rated Aa1 by Moody's and AA- by Fitch. Both agencies have, however, put the Singapore electricity and gas company's ratings on watch for possible downgrades following the Alinta purchase.