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Why the APA Group Ltd (ASX:APA) share price plunged today

The APA Group Ltd (ASX: APA) share price is down 8% to $8.74 today after federal treasurer Josh Frydenberg announced that it is likely to block the Hong Kong and China backed CKI Group’s takeover bid as it would be “contrary to the national interest”.

Mr Frydenberg stated that the decision had been come to on advice from the Foreign Investor Review Board and other experts.

The explanation given for the rejection was that APA as an operator of  strategic gas pipeline infrastructure in Australia should not have an undue ownership concentration by a foreign entity like CKI.

The treasurer noted how APA owns and controls 15,000 kilometres of gas pipelines around Australia, which is equivalent “to 56% of Australia’s gas pipeline transmission system, including 74% of New South Wales and Victoria pipelines”.

Recently the government has also knocked back a bid by Chinese telecommunication infrastructure experts Huawei from helping build the infrastructure required for Australia’s next-generation 5G mobile networks. This decision was also related to what the government stated was the need to retain control of strategically sensitive assets.

The rejection of Chinese companies’ attempts to invest in Australia, will not go unnoticed by the one-party state in China that is still a key market for Australian foodstuffs exporters in particular.

Companies like Treasury Wine Estates Ltd (ASX: TWE), Bellamy’s Australia Ltd (ASX: BAL) and vitamins maker Blackmores Limited (ASX: BKL) all rely heavily on Chinese sales to growth their profits, but are vulnerable to regulatory risk.

APA Group is a popular share with many Australian institutional and retail investors thanks to its defensive revenue streams as a monopoly-like infrastructure asset and thanks to its reliable dividend payments.

On a trailing basis the shares yield 5.2% based on 45 cents per shares in dividends paid out over the last year.

Over the last 5 years the shares are up 82%, and including dividends investors would have more than doubled their money in the period. This shows why the APA Group is a more than strategically important asset and worthy of being on the watch list of conservative income seekers.

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Motley Fool contributor Yulia Mosaleva has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Blackmores Limited and Treasury Wine Estates Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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