Britain's National Grid PLC is continuing its strategic pivot toward electricity, having agreed to sell a 60% equity interest in National Grid Gas PLC, its U.K. gas transmission and metering business, to a consortium of Macquarie Asset Management Inc. and British Columbia Investment Management Corp.
National Grid Gas, or NGG, owns and operates the U.K.'s 7,660-kilometer regulated gas transmission system along with an independent gas metering business. The deal announced March 27 values the business at about £9.6 billion.
National Grid will receive approximately £2.2 billion in cash on top of about £2 billion of additional debt financing at completion, which is intended for the second half of 2022, subject to antitrust and regulatory clearance.
The buyers also have the option to acquire the remaining 40% on broadly similar terms between Jan. 1, 2023, and June 30, 2023, though for now the minority stake will be held by National Grid via a new holding company, GasT TopCo.
For National Grid, the deal will increase the balance of its portfolio toward electricity from about 60% to about 70%. The company announced a strategy in March 2021 to lean more heavily on electricity than gas, beginning with the acquisition of Western Power Distribution PLC, the U.K.'s largest power distribution company, from U.S.-based PPL Corp.
"Alongside our plans to invest up to £35 billion in energy infrastructure over the next five years, the series of transactions announced last March will strengthen our long-term growth prospects, and drive long-term value for shareholders," National Grid CEO John Pettigrew said in a March 27 news release.
Pettigrew noted that NGG's buyers have "a long-term commitment to the U.K. with significant experience in owning and operating infrastructure assets." Macquarie Group Ltd. and several other infrastructure investors own National Grid's former U.K. gas distribution business, now called Cadent Gas Ltd.
Infrastructure investors have been buying up power and gas networks across Europe in recent years, lured by the regulated returns and the relatively low risk. In the U.K., SSE PLC recently closed the sale of its one-third stake in Scotia Gas Networks Ltd., its gas distribution business, to Ontario Teachers' Pension Plan Board and Brookfield Super-Core Infrastructure Partners LP.
Investors are also drawn to the sector because of the significant funds required to upgrade grids.
Martin Bradley, head of Macquarie Asset Management's real assets team in Europe, the Middle East and Africa, said the U.K.'s gas transmission system is crucial to the country's energy transition, for example, by enabling the expansion of hydrogen.
"However, if the U.K.'s net-zero by 2050 target is to be met, the country must have a next-generation transmission backbone to power homes and businesses with renewable energy," Bradley said in a news release. "Backed by our significant investment, the transmission system will play a leading role in making the network ready for this transition."
NGG's regulated asset value is estimated at £6.6 billion and its net debt is about £3.8 billion. It had gross assets at Sept. 30, 2021, of £6.1 billion and generated profit before tax of £406 million in the 12 months to March 31, 2021.
National Grid was advised on the sale by Barclays, Goldman Sachs and Robey Warshaw.
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