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National Grid sells 61% stake in gas arm to Macquarie/CIC consortium

The UK’s National Grid has agreed to sell a 61 per cent stake in its gas distribution network to a consortium of global investors, a deal that will plug the 11m homes the network serves into investors such as China’s sovereign wealth fund and Australian investment bank Macquarie.

The terms of the transaction imply an enterprise value for the division of around £13.8bn including debt.

The investment group includes a subsidiary of China’s sovereign wealth fund China Investment Corporation, Macquarie Infrastructure and Real Assets, Allianz Capital Partners, UK asset manager Hermes Investment Management and the Qatar Investment Authority.

Mira and CIC hold the two largest stakes at 14.5 per cent and 10.5 per cent, respectively, according to a statement from the investor group.

National Grid said in a statement on Thursday that the consortium was also in talks to acquire an additional 14 per cent of the business at a similar price to the agreed transaction.

The consortium will pay £3.6bn in cash for equity interest. National Grid will also receive £1.8bn in debt financing. The transaction is expected to be completed by the end of March.

The sale of the stake in a business that serves about half of UK residences had attracted strong interest from investors in Asia.

State-owned China Resources was part of a consortium that participated in the auction alongside Australia’s Hastings Fund Management and Singapore Power. Two other groups were led by Fosun, the Chinese conglomerate, and Cheung Kong Infrastructure, owned by Li Ka-shing, the Hong Kong tycoon.

The deal is subject to approval from the European Commission and comes at a time of increased sensitivity to Chinese investment in crucial infrastructure in western countries.

On approving an £18bn investment from French developer EDF and a Chinese state-owned company CGN for the Hinkley Point nuclear power plant, Prime Minister Theresa May also indicated in September that foreign investments in UK infrastructure would be closely scrutinised.

The UK government is reviewing the 2002 Enterprise Act and whether ministers should have stronger powers to intervene in the sale of such infrastructure.

In August, Australian regulators blocked the A$10bn sale of a controlling 50.4 per cent stake in Ausgrid to State Grid Corp, which is owned by the Chinese government, on national security grounds.

Prior to Thursday’s deal announcement, National Grid’s chief executive said the security of the supply of gas would be safeguarded regardless of which company won the auction.

Martin Stanley, global head of Mira, said in a statement: “This is a well-established business and we are confident that we as investors can continue to provide both high quality infrastructure for the UK and appropriate risk-adjusted returns for investors”.

“Mira has long-standing operational experience in managing utilities and critical infrastructure in the UK,” Mr Stanley added.

China’s sovereign wealth fund CIC also owns stakes in Thames Water and Heathrow Airport.

Participants had expected the final decision on Monday, but deliberations delayed the announcement until Thursday.

Via FT