Sembcorp, the Singapore listed energy and infrastructure group backed by government investment, has agreed to acquire Australian gentailer Alinta Energy in a deal valued at about $6.5bn, a level that goes well beyond what local rivals had been prepared to pay. For the past two years Alinta had been quietly in play, with major Australian utilities sounding out potential transactions but reportedly only willing to pay in the $4bn range, well short of the more than $6bn price expectations of its Hong Kong owner. That gap kept earlier talks from progressing and it set the stage for an offshore buyer willing to stretch further to secure scale in Australia’s power market.
On current numbers Sembcorp’s move does not look outrageous on earnings multiples but it still raises eyebrows. Alinta generated around $987m in earnings before interest, tax, depreciation and amortisation in the year to June, up about 17%, and lifted net profit roughly 15% to $483m. The agreed equity value of $5.6bn implies a purchase price of about 6.6 times trailing EBITDA and an estimated 7.4 times next year’s earnings, significantly above Alinta’s net tangible assets of roughly $758m and notably richer than the multiple at which a comparable listed Australian utility trades, which sits closer to 4.5 times. Almost all of the deal is debt funded, pushing Sembcorp’s net debt from about 3.6 times EBITDA to 4.6 times and making the acquisition look like an earnings accretive financial play as much as a strategic expansion.
The timing and structure of the deal seem to be where doubts creep in. Australian wholesale power prices have been unusually high over the past year, which has helped to fatten Alinta’s recent results, but many in the market question whether such elevated pricing will last long enough to justify paying up now. Sembcorp is positioning the acquisition as part of its broader transition narrative, adding 3.4 gigawatts of installed and contracted generation and providing access to 10.4GW of renewables and firming development options, yet Alinta’s fleet still includes one of the country’s most emissions intensive coal fired power stations. That sits uncomfortably beside Sembcorp’s public goal of lifting renewable capacity to 25 gigawatts by 2028 from about 18.9GW now and it comes from a seller seen as under pressure to reduce leverage, which only deepens questions over why such a premium was necessary.
In the bigger picture the transaction looks like a sign that energy transition plans are being reshaped rather than abandoned. The Foreign Investment Review Board appears likely to sign off and Sembcorp’s move underlines that coal backed generation is still viewed as a necessary bridge even by organisations that brand themselves as transition leaders. At the same time other large corporates, from miners trimming decarbonisation budgets to global energy majors rebalancing away from some ambitious hydrogen and renewables projects, seem to be quietly dialling back the pace of their net zero commitments. Against that backdrop Sembcorp’s bold, debt heavy bet on Alinta could either prove a savvy way to lock in scale and cash flow ahead of a more gradual transition or an expensive reminder of how volatile power markets and policy expectations can be.
