APA Group (APA) announced today it has successfully established its unlisted investment vehicle – Energy Infrastructure Investments Pty Limited – and that funds released from this transaction will result in a reduction of APA’s borrowings by $647 million.

Transaction highlights

• APA achieved book value for the sale of annuity-style assets into Energy Infrastructure Investments.
• Funds of $647 million released from the transaction represent the enterprise value, less transaction costs and APA’s equity investment in Energy Infrastructure Investments.
• APA will apply the funds received to reduce corporate debt, which will reduce gearing to approximately 69%.
• Energy Infrastructure Investments has attracted Marubeni Corporation and Osaka Gas, both strong investors with international industry experience.
• APA continues to benefit from the assets through its 19.9% equity participation in Energy Infrastructure Investments and as provider of comprehensive commercial
  and operating services under a long term agreement.

APA's Managing Director, Mick McCormack said: “With the completion of this transaction, APA has delivered on key strategic objectives outlined six months ago.  As a result, we have a stronger balance sheet and are better positioned to develop the opportunities on our core gas infrastructure assets.”

The value achieved for the assets was in line with APA’s combined estimated book value of the existing assets and those under construction once completed.  Mr  cCormack said these assets have either been recently acquired or developed, and achieving book value, particularly in the current turbulent market, is a highly satisfactory outcome for APA.

“Additionally, we are pleased to have as investors in this vehicle, Marubeni Corporation and Osaka Gas, and look forward to working closely with them” Mr McCormack added.

Energy Infrastructure Investments

The assets transferred into Energy Infrastructure Investments comprise:

• Electricity interconnectors – Murraylink and Directlink,
• Gas power generation – Daandine and X41 power stations,
• Coal seam gas processing plants – Tipton West and Kogan North, and
• Gas pipelines – Telfer/Nifty Gas Pipeline, Bonaparte Gas Pipeline and Wickham Point Pipeline (under construction).

All assets are currently operating with the exception of the Bonaparte and Wickham Point pipelines, which will begin operation in 2009.

The enterprise value of Energy Infrastructure Investments is $703 million, with equity contribution of $165 million and new five year, non-recourse project debt of $538 million. On a proforma basis, the sale of the assets, including those under construction, represents a FY09 EBITDA multiple of approximately 10.6 times.

APA retains a minority interest of 19.9% in Energy Infrastructure Investments, with Marubeni Corporation holding a 49.9% stake and Osaka Gas 30.2%.
APA will continue to manage and operate the assets under a long term agreement with a market-based fee structure.

Financial impact on APA

Funds released from this transaction will be applied to reduce APA’s debt by $647 million.  Consequently APA’s gearing will reduce to approximately 69%, and the level of interest rate hedging will increase to 82%.  APA will now have committed undrawn debt facilities of $620 million available to it, with the ability to either repay or refinance its only refinancing commitment in 2009, being the $300m of Medium Term Notes due in March 2009.

The sale of these assets will not impact APA’s previous guidance of growth in operating cash flow per security of at least 5%.