Sovereign-Wealth Funds, Macquarie Buy Stake in National Grid's U.K. Gas-Distribution Unit -- 2nd Update
December 08 2016 - 9:20AM
Dow Jones News
By Ben Dummett and Neanda Salvaterra
LONDON--A consortium led by Australia's Macquarie Group Ltd. and
including sovereign-wealth funds from China and Qatar on Thursday
agreed to buy a majority stake in the U.K. gas-distribution
business of National Grid PLC for about GBP3.6 billion ($4.56
billion)
The agreement marks the end of a year-long sale process and is
part of the big London-based utility's stated goal of focusing on
higher-growth operations.
Completion of the deal, which is valued around GBP13.8 billion
including debt, is subject to approval from the European
Commission. It could serve as a possible test case for the U.K.
government as the latest large foreign investment in U.K. energy
infrastructure. In July, Prime Minister Theresa May signaled that
she may ratchet up scrutiny of domestic businesses acquired by
foreigners, saying the government should have the right "to defend"
a sector of strategic importance.
John Pettigrew, chief executive of National Grid, said the
consortium has been briefed on its legal obligations to provide a
reliable gas service to consumers and added that the new owners
have managed gas-distribution and utilities in the past and are now
involved in significant infrastructure projects such as Heathrow
Airport.
"The partners that are buying the business are absolutely
committed to delivering a safe and reliable service," said Mr.
Pettigrew in a phone interview.
U.K. infrastructure investors are prominent members of the group
that has agreed to buy 61% of the natural gas-distribution
business. Together Hermes Investment Management, Amber
Infrastructure/International Public Partnerships Ltd. and Dalmore
Capital would own 17% of the gas-distribution operation.
Australian's Macquarie Infrastructure and Real Assets would be the
single biggest owner within the consortium, owning 14.5%. China
Investment Corp. would own 10.5%, followed by Allianz Capital
Partners, which would hold 10.2%. Sovereign-wealth fund Qatar
Investment Authority would hold an 8.5% stake.
Sovereign-wealth funds and other long-term investors are
frequent buyers of utilities, toll roads and other large-scale
infrastructure assets as these businesses typically generate steady
cash flows that rise with inflation.
"We have been actively pursuing an investment in National Grid's
gas-distribution business in the U.K. for the past year," said
Peter Hofbauer, head of infrastructure at Hermes Investment.
In potential support of the National Grid transaction, the U.K.
government approved in September construction of an GBP18 billion
nuclear power station at Hinkley Point in southwest England. The
Hinkley Point project is majority owned by Électricité de France
SA, or EDF, a utility partly owned by the French state and a third
of the funding for the project is coming from China General Nuclear
Power Corp. In that transaction, though, the U.K. government added
conditions, including that it would impose a new legal framework
that would mean it can intervene in the sale of the controlling
stake owned by EDF.
National Grid said it expects to complete the deal on or before
March 31, 2017, after which it will own a 39% minority equity
interest in the business. The utility expects to return at least
75% of the net proceeds to shareholders through a special dividend
and use the remaining amount to buy back stock.
The U.K. gas-distribution business is the largest in the U.K.,
comprising four regional gas-distribution networks, servicing
almost 11 million customers. National Grid's U.K. business also
includes a system of electricity- and natural gas-transmission
facilities as well as operations in several U.S. states, including
upstate New York, Massachusetts, New Hampshire, Rhode Island and
Vermont.
The lagging profit performance of National Grid's
gas-distribution business underscores its decision to sell down its
stake in the business. For the six-month period ended Sept. 30, the
U.K. gas-distribution operation reported a 5.8% drop in adjusted
operating profit from the year-earlier period. By comparison, the
U.K. electricity- and gas-transmission businesses, as well as the
U.S. operations each reported flat or year-over-year profit
growth.
Write to Ben Dummett at ben.dummett@wsj.com and Neanda
Salvaterra at neanda.salvaterra@wsj.com
(END) Dow Jones Newswires
December 08, 2016 09:05 ET (14:05 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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