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Macquarie, BCI to acquire majority stake in NGG business

National Grid has agreed to sell a 60 percent equity interest in its UK gas transmission and metering business to a consortium.

National Grid has agreed to sell a 60 percent equity interest in its UK gas transmission and metering business to a consortium. The consortium consists of Macquarie Asset Management and British Columbia Investment Management Corp. The deal implies an enterprise value for the gas transmission and metering business of about £9.6 billion ($12.6 billion).

PRESS RELEASE

National Grid plc (“National Grid”) today announces that it has agreed to sell a 60% equity interest in its UK gas transmission and metering business (“NGG”) to a consortium (the “Consortium”) of long-term infrastructure investors (the “Transaction”).

The Consortium is comprised of Macquarie Asset Management, a global asset manager and the world’s largest infrastructure manager, and British Columbia Investment Management Corporation (“BCI”), one of Canada’s largest institutional investors. As announced in March 2021, the Transaction forms part of National Grid’s strategic pivot towards electricity and follows last year’s acquisition of Western Power Distribution (“WPD”), the UK’s largest electricity distribution business, and announced sale of The Narragansett Electric Company (“NECO”) in the US.

The terms of the Transaction imply an enterprise value for NGG of approximately £9.6 billion[1]. On completion, National Grid will receive approximately £2.2 billion in cash consideration (subject to customary completion adjustments)[2]. Following the Transaction, National Grid will own a 40% minority equity interest in NGG via a new holding company called “GasT TopCo”. In addition, National Grid will also receive approximately £2.0 billion from additional debt financing at completion. As at March 2022, NGG’s regulated asset value is estimated to be approximately £6.6 billion and its net debt is estimated to be approximately £3.8 billion.

National Grid has also entered into an option agreement with the Consortium for the potential sale of the remaining 40% of equity in GasT TopCo (the “Further Interest”). The option may be exercised by the Consortium between 1 January 2023 and 30 June 2023 (subject to change depending on the timing of the closing of the Transaction). If the option is exercised, the consideration for the Further Interest is expected to be paid in cash to National Grid on broadly similar terms to the Transaction, subject to adjustment for dividends paid in the business at the time of exercise. Further details will be announced if the option is exercised.

Completion of the Transaction will be subject to certain antitrust and regulatory conditions. Subject to these clearances, National Grid expects that the Transaction will complete in the second half of calendar year 2022.

On completion, the Transaction together with the proposed sale of NECO, will:
Increase the balance of National Grid’s portfolio towards electricity, with the proportion of the Group’s assets in electricity growing from c.60% to c.70%;

Significantly enhance National Grid’s central role in the delivery of the UK’s net zero targets;
Underpin National Grid’s 6 to 8% asset growth target for longer;
Enable National Grid to maintain a strong balance sheet with its strong investment grade credit rating, supporting its sustainable dividend policy.
[1]Includes debt-like items and provisions of approximately £0.2 billion.
[2] Assuming expected completion in the second half of calendar year 2022.
John Pettigrew, Chief Executive of National Grid, said:

“This transaction further enhances our role in delivering the UK’s energy transition, pivots our portfolio towards electricity, whilst ensuring the security of the energy supply for the country. 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.

Today’s announcement is a strong result for all our stakeholders, including employees and customers. The Consortium has a long-term commitment to the UK with significant experience in owning and operating infrastructure assets. I look forward to our partnership and continuing to deliver safe and reliable gas service at the least cost to consumers. I would also like to thank my colleagues in Gas Transmission and Metering for their hard work that has helped us reach this important milestone.”

Martin Bradley, Head of Macquarie Asset Management’s Real Assets team in EMEA, said:
“The national transmission system is a critical enabler of the UK’s energy transition, providing the flexibility and reserve energy needed in the electricity system as the deployment of renewable sources of generation accelerates. However, if the UK’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.

Backed by our significant investment, the transmission system will play a leading role in making the network ready for this transition. In doing so it will support the expansion of hydrogen’s role in the energy mix to deliver a competitive edge to the UK and its industry, while working closely with the Government and Ofgem to maintain security of supply.”
Lincoln Webb, Executive Vice President and Global Head of Infrastructure & Renewable Resources at BCI, said:

“This investment aligns well with our diversified portfolio of regulated utilities that securely deliver critical services to customers. We believe National Grid’s innovative decarbonisation strategy will ensure the business plays a leadership role in supporting the UK to achieve net zero carbon emissions on target by 2050, while meeting consumer demand for reliable networks.”

Following completion of the Transaction, National Grid intends to use proceeds of approximately £4.2 billion towards repayment of the bridge financing facility that was drawn as part of the acquisition of WPD. For the purposes of Listing Rule 10.4, NGG’s gross assets as at 30 September 2021 were £6.1 billion. For the period 1 April 2020 to 31 March 2021 NGG group generated profit before tax of £406 million.

The Transaction constitutes a class 2 transaction for the purposes of the UK Financial Conduct Authority’s Listing Rules and, as such, does not require National Grid shareholders’ approval.

Following completion, National Grid’s interest in GasT TopCo will be accounted for under the equity method of accounting.

National Grid was advised by Barclays, Goldman Sachs, and Robey Warshaw.

About National Grid Gas
National Grid Gas owns and operates the regulated gas National Transmission System (NTS) in Great Britain, and also owns a regulated gas metering business.