(SINGAPORE) The world's longest undersea power cable, which allows Tasmania to buy electricity from the Australian mainland during dry periods, will be bought by CitySpring Infrastructure Trust - Singapore's first infrastructure fund set up by Temasek Holdings.

CitySpring outbid three other rivals to acquire 100 per cent of the Basslink cable for A$1.175 billion (S$1.526 billion).

The 370-kilometre submarine cable facilitates the trading of electricity between Tasmania and Victoria, Australia. It was previously owned by UK's National Grid, which has decided to exit the Australian market.

The deal, marking CitySpring's first overseas acquisition since its February IPO, was inked early yesterday morning, its CEO Fai Au Yeung said via teleconference. Mr Fai has been in Melbourne over the past few days, hammering out the details of the bid with help from adviser Goldman Sachs.

The transaction, subject to a number of contractual and governmental consents in Australia, is expected to be completed by end-September.

The brand-new Basslink electricity interconnector - which reportedly cost A$850 million to build and is the only one between Tasmania and the Australian mainland - became operational in April last year. It has achieved an average availability of 99.5 per cent in its first year.

The interconnector has the capacity to export up to 630 megawatts of power from Tasmania to Victoria and import over 300 MW to Tasmania.

It allows electricity arbitrage opportunities by facilitating exports from Tasmania's hydro-generated power at times of peak prices in Australia's national electricity market. At the same time, it also provides security of supply to Tasmania, which can import electricity from Australia, especially during drought periods.

CitySpring's bid was 'the most competitive and the best overall package', Mr Fai said. Its rivals for the project included Australia's Transfield Services and APA Group and funds group Industry Funds Management.

In fact, CitySpring's price represents an enterprise value to Ebitda multiple of 14.6 times, which compares favourably with eight other transactions in Australia's utility sector over the last 12 months, he pointed out. In fact, the median was 15.5 times. SingPower's acquisition of Alinta for A$8.76 billion, for instance, had an EV to Ebitda multiple of 16.4 times.

Agreeing, Citigroup economist Chua Hak Bin told BT that 'a multiple of 14.6 times seems pretty decent and is a respectable return'.

Mr Fai said that the Basslink acquisition is also immediately yield accretive. Based on the last closing price of CitySpring of $1.26 on July 30, 'we expect yield accretion following the capital raising to be at least 10 per cent for the year ending Mar 31, 2008'.

The A$1.175 billion acquisition will be 75 per cent funded by long-term, Australian dollar bond financing with staggered maturities, as well as a bridge facility of 25 per cent. The latter will be repaid via a new equity issue which has the support of Temasek.

CitySpring hopes to financially clinch the acquisition by end-August, followed by an EGM to approve the acquisition in November. That's when it will also start raising the equity capital.

Goldman Sachs and Societe Generale have already been mandated for the bonds, which will be launched soon, Mr Fai said.

The acquisition has long-term, predictable cashflows derived from a 25-year contract with Hydro Tasmania, the electricity generator fully owned by the Tasmanian government. It is also yield accretive and has potential for long-term capital growth.

The power cable easily has a useful life of over 20 years ahead of it, Mr Fai said. Going forward, the interconnector also has an 'embedded', currently unlit, fibre-optic cable which will provide CitySpring with additional telecoms revenue once the Tasmanian government auctions capacity to encourage broadband penetration, he added.

The Australian asset will account for 49 per cent of CitySpring's equity value, with City Gas making up 42 per cent and SingSpring 9 per cent.

One analyst who declined to be named, was concerned, however, that Basslink had 'no historical financials', having just started up operations a year ago.

But another industry official felt that transmission assets, of the kind CitySpring has just bought, 'provide a nice, steady income stream. It is the right form of asset for a pension or investment fund as there is relatively low risk.

'It should provide a rate of return of around 7 per cent,' the official told BT.

Meanwhile, asked if CitySpring will still have the appetite to buy into the three Singapore generating companies - coming up for sale in September - after such a large acquisition, Mr Fai said that CitySpring's plan is to continue to grow by acquisitions and it, therefore, continues to evaluate the gencos here like any other potential target.