Asia's energy M&A deal value soared 78% to US$10.3b in Q2

Solar and wind transactions hit US$3.8b and boosted total deal value.

The deal value of mergers & acquisitions (M&A) in Asia Pacific’s energy sector soared by 78% to US$10.3b in the second quarter of 2018 from US$5.8b in Q1, EY revealed in a report.

The region’s largest announced deal was the US$5.2b acquisition of a 69.1% stake in Thailand’s Glow Energy by Global Power Synergy Public Company, which is owned by Engie. It contributed 50% to the total deal value for Q2.

“Whilst the biggest energy deal of the quarter was in generation, renewables are driving most investment opportunities in the Asia Pacific,” said EY global power & utilities TAS leader Miles Huq. The deal value of solar and wind more than doubled to US$3.8b.

The other top deals for Q2 were: ReNew Power’s acquisition of India’s Ostro Energy for US$1.7b; Greenko Energy’s US$900m bid for Orange Renewable Power in India; and Shanghai Dazhong Public Utilities’ purchase of a 37.23% stake in Jiangyin Tianti Gas for US$300m.

Thailand hosted US$5.3b of deals whilst India saw US$3.2b of deals in Q2, making them two of the top investment destinations globally. They contributed 83% to the total value of domestic deals in the Asia Pacific.

China leads outbound investment
China drove 97% of outbound investment from the Asia Pacific. Its Belt and Road Initiative (BRI) also saw it lead a global outbound investment in Q2 with US$31.2b of announced cross-border energy deals. Much of this value (US$27.4b) was attributable to the takeover bid by China Three Gorges of Portugal’s EDP, which owns transmission & distribution (T&D) assets across Europe.

As part of the trend of utilities exploring new technologies, EY mentioned the formation of TEPCO Ventures and China’s Cathay Smart Energy Fund which revolve around the development of “disruptive” technologies, Internet of Things (IoT) technologies, energy storage, low-carbon activities, and power infrastructure.

Australia is also notable for its continued investment in new energy technologies, as seen in March by the Australian Renewable Energy Agency’s grant of US$7.7m to Simply Energy for an 8MW virtual power plant that will involve the in-home installation of 1,200 Tesla Powerwall 2 batteries.

Meanwhile, China’s solar subsidy reduction halted the development of new solar farms and resulted in an oversupply of panels. “Analysts estimate that global solar panel market prices will drop 24%, which is expected to stimulate demand and drive more installations around the world,” EY said.

Both the value (US$91.b) and the volume (28) of deals contributed by corporate investors increased. The Asia Pacific sector traded the lowest average current EV/EBITDA multiple of all regions. Gas utilities provided investors with the best returns both year-to-date and quarter-to-date, EY said.

Meanwhile, global energy deal value hit US$83b, with 46% of the volume comprised of deals for renewables. The value is a historical high but it is down by 14% compared to the Q1 value.