Fundraising

Cheung Kong Infra buys UK gas network for £645m

The Hong Kong investor led a consortium that has just acquired Wales & West Utilities, which manages some 35,000km of gas pipelines across Wales and England. The deal effectively doubles Cheung Kong’s UK gas network, adding to the 37,000km of pipelines it already owns.

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Cheung Kong Infrastructure (CKI), the largest publicly listed infrastructure company in Hong Kong, has entered into a deal that, when concluded in September, will effectively double its UK gas network to 72,000 kilometres under management.

CKI is leading a consortium which has offered to write a £645 million (€824 million; $999 million) equity cheque to acquire Wales & West Utilities, which manages a regulated gas network spanning some 35,000 kilometres of pipelines across Wales and the south west of England. The utility also carries with it some £1.49 billion of debt.

CKI already manages 37,000 kilometres of UK gas pipelines through Leeds-based Northern Gas Networks, which it bought in 2004 for £1.4 billion.

The Wales & West Utilities sellers were a group of investors including Macquarie, the Canada Pension Plan Investment Board, Industry Funds Management and AMP Capital Investors. The latter said in a statement that “the sale provides a good opportunity for investors to realise the investment value at an attractive valuation”. According to data from Bloomberg, the CKI consortium is paying a multiple of 5.33 times Wales & West’s earnings before interest and tax. 

The utility, which serves 7.4 million customers, “should be able to bring us the similar return from the northern gas project we bought earlier, which has had double digit return over the years,” CKI managing director Kam Hing Lam said at a press conference held today in Hong Kong, Bloomberg reported.

In recently unveiled results for the first half of 2012, CKI praised the performance of its UK assets, which recorded a 45 percent increase in profits compared with the same period last year. CKI said that Northumbrian Water, the utility which it acquired for £2.4 billion last August, had “exceeded the group’s expectations”.

Meanwhile, profits at UK Power Networks, the electricity distribution network operator acquired in 2010 from French group EDF, increased 21 percent over the same period last year while Northern Gas Networks “also performed well,” with a 16 percent jump in profits. CKI said its other UK operations, including Seabank Power Station, were delivering “in accordance with budget”.  

The other consortium members joining CKI in the Wales & West Utilities acquisition include Cheung Kong Holdings and LKSFL – both, like CKI, owned by Li Ka-shing, Hong Kong’s richest man – the PAH Group and the HWL group.