-- Cheung Kong, CKI consortium to buy U.K. gas distributor for
US$1 billion
-- The deal will boost Cheung Kong's business portfolio in the
U.K.
-- Shares of Cheung Kong Infrastructure suspended from
trading
(Recasts 1st paragraph, adds more comments from executives.)
By Joanne Chiu
HONG KONG--A consortium led by Hong Kong billionaire Li
Ka-shing's flagship Cheung Kong (Holdings) Ltd. has agreed to buy a
major U.K. gas-distribution company for 645 million pounds sterling
(US$1 billion), increasing the Hong Kong group's exposure to the
U.K. utilities sector at a time of slow growth in its saturated
home market and as a weak global economy creates opportunities for
cash-rich firms.
The Cheung Kong group has built a wide-ranging U.K. business
portfolio, covering telecommunications, ports, water utilities, and
energy, and Mr. Li's companies have been increasingly looking
abroad for possible acquisitions to broaden their revenue base.
Word of the latest deal comes as Cheung Kong Infrastructure
Holdings Ltd., a utility and part of the consortium pursuing the
gas distributor deal, has been building a war chest to continue its
hunt overseas for utilities assets.
The company is now preparing for its third major fundraising
activity of the year, with plans to raise up to $405.2 million for
general working capital via a new share placement, according to a
term sheet seen by Dow Jones Newswires on Tuesday. That comes after
it raised 2.3 billion Hong Kong dollars (US$295 million) through a
share placement in March, and another HK$2.3 billion by issuing
fixed rate callable perpetual securities in February.
Cheung Kong Infrastructure Managing Director Kam Hing-lam said
Wednesday the company has more than HK$8 billion in cash on hand
and will continue to seek acquisition opportunities abroad. "We're
looking for projects that can delivery steady recurring cash flow
and profits," Mr. Kam told reporters, without elaborating.
CKI posted an 18% rise in first-half net profit thanks to a
strong contribution from recently acquired U.K.-based Northumbrian
Water Group PLC, which provides water and sewage treatment services
to 4.5 million people, from a group including Ontario Teachers'
Pension Plan, one of Canada's three largest pension funds.
CKI's assets in the U.K., the company's largest market,
accounted for nearly half of its net profit for the period. The
contribution from the U.K. also rose 45% from a year earlier to
HK$2.72 billion.
In 2010, a consortium led by CKI and its 38.87%-owned
electricity company Power Assets Holdings Ltd. bought U.K. Power
Networks from Electricite de France SA for GBP5.78 billion. The two
companies each also own a 25% stake in Seabank Power Station, a
1,140 megawatt gas-fired power station near Bristol in the U.K.
Apart from Hong Kong and the U.K., CKI has investments in
mainland China, Australia, Canada, the Philippines and New Zealand,
with businesses ranging from electricity generation to water and
natural gas supply.
In the latest deal, the companies in the consortium said in a
joint statement that they agreed Wednesday to buy MGN Gas Networks
(UK) Ltd., which owns U.K. gas distributor Wales & West
Utilities Ltd., from a number of investment and fund management
firms, including Macquarie Global Infrastructure Funds 2 SARL.
The partners in the consortium are Cheung Kong, CKI, Power
Assets, and Li Ka Shing Foundation Ltd., with the first three each
holding a 30% stake in the joint venture company. Li Ka Shing
Foundation will hold the remaining 10% stake, the statement
said.
Cheung Kong Holdings' direct involvement in utilities
investments could strengthen the Hong Kong-based developer's
financial capability, giving it a steady cash flow and profit as
its core property business faces cyclical economic cycles. The
purchase of Wales & West is its second such deal after the real
estate developer partnered with CKI and Li's charitable foundation
to buy Northumbrian Water in 2011.
The completion of the Wales & West acquisition, expected by
the end of September, will more than double the group's share of
the U.K.'s gas distribution market to 25% of the served population,
it said. The CKI-led consortium bought another U.K. gas
distributor, Northern Gas Networks, in 2005.
Wales & West's regulated network supplies 7.4 million
customers within an area of 42,000 square kilometers (16,216 square
miles), or almost one-sixth of the area of the U.K., the statement
said, with the length of the company's main gas pipeline totaling
35,000 kilometers.
The gas distributor recorded a net loss of GBP63.1 million for
the year ended March, compared with a net loss of GBP62.5 million a
year earlier, according to the statement. CKI Deputy Chairman
Edmond Ip said the losses at Wales & West were due to
mark-to-market losses on inflation swaps--financial instruments
used to hedge inflation risk, but CKI expects the company to
contribute steady returns once it is consolidated into the
group.
CKI halted its Hong Kong-listed shares from trading at 0100 GMT,
but declined to provide a reason. Its shares ended 0.4% higher at
HK$49.25 Tuesday.
Write to Joanne Chiu at joanne.chiu@dowjones.com
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