Li Ka-shing jumps on bruised trust sector

Hong Kong billionaire Li Ka-shing, Asia's richest man, is targeting further growth in Canada's energy sector as a company he controls has snapped up Calgary-based TransAlta Power LP for $629-million and could buy more of the country's beleaguered income trusts.

Cheung Kong Infrastructure Holdings Ltd. (CKI), a Hong Kong-based utility, said yesterday that it will pay $8.38 in cash per unit of Calgary-based TransAlta Power. The deal is part of a concerted effort by CKI to establish itself in North America, potentially the first of other similar deals, the company said in a press release.

"The proposed acquisition of TransAlta Power is a springboard for CKI into the Canadian energy market. ... We look forward to further expanding into North America," CKI Group managing director H.L. Kam said. "In view of the liquidity situation in the global markets and the affordability to compete for mega-infrastructure projects, CKI remains in an excellent position to pursue good acquisition opportunities," he added.

TransAlta Power, one of Canada's larger power trusts, had put itself up for sale in May, claiming that the federal government's decision to tax income trusts like regular companies meant its business model was no longer the best way to serve unitholders. It is majority owned by Calgary-based private power producer TransAlta Corp.

The company's sole business is a 49.99-per-cent interest in TransAlta Cogeneration LP, which owns interests in a total of five gas-fired co-generation plants in Ontario, Alberta and Saskatchewan.

It also has a coal-fired Alberta facility. The combined generating capacity is 1,352 megawatts. TransAlta Corp. owns the rest of TransAlta Cogeneration and will remain the operator of the power plants.

People familiar with the deal said Mr. Li, who already controls approximately 71 per cent of Calgary-based Husky Energy Inc., is using his cash-rich position to take advantage of current uncertainty in the trust sector, with the TransAlta acquisition allowing CKI to become a meaningful Canadian electricity player without yet having to become an operator.

While details of the bidding for TransAlta are scarce, CKI appears to have beaten off interest from several other firms, including unnamed North American private equity groups, to make the acquisition.

"The grounds for making this acquisition are clearly to establish a foothold in North America, and tally with CKI's increasing exposure in other established markets," said Steven Knell, a London-based analyst with Global Insight, who noted CKI's growth in Britain and Australia. "It's a sound strategy that will make some waves, establishing the firm globally."

CKI has some $1.1-billion of cash still to spend. Potential acquisition targets in Canada could include power generation trust subsidies owned by other infrastructure companies, such as Enbridge Inc., which will likely be sold or restructured as traditional common stock companies by 2011.

Mr. Li's increasing interest follows recent acquisitions in Canada's energy sector by another unlikely overseas player, Abu Dhabi National Energy Co., known as Taqa, which has targeted $7.5-billion on acquisitions in Alberta in just six months.

While Taqa's purchases have created some chatter that Canada could toughen its foreign investment rules, throwing a potential obstacle in the way of future acquisitions, sources close to the CKI-TransAlta deal said they were confident that the government wouldn't interfere, given that CKI is not state-owned and that the firm isn't buying a majority stake in any power plant.

TRANSALTA POWER (TPW.UN)

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