Cheung Kong to buy Eversholt for £2.5bn

The transaction will provide a lucrative exit from the UK rail leasing business for 3i, Morgan Stanley, STAR and PGGM.

Eversholt Rail, one of the UK’s three largest rail rolling stock businesses, is to be acquired by Hong Kong-based conglomerate Cheung Kong.

The transaction will see London-listed 3i Infrastructure, New York-headquartered Morgan Stanley Infrastructure Partners and UK fund manager STAR Capital Partners, along with its co-investor PGGM, sell 100 percent of the company to CK Investments, an entity jointly owned by Cheung Kong Infrastructure Holdings and Cheung Kong Holdings. Both are controlled by Li Ka-Shing, Asia’s richest man.

The deal gives Eversholt an enterprise value of £2.5 billion (€3.3 billion; $3.8 billion), and includes a £1.1 billion equity cheque. Still subject to clearance by the EU Commission, it is expected to close in March 2015.

The sale will represent a lucrative exit for its current owners. 3i initially invested £151 million in the business, which it valued at £241 million last September. The company is now selling its stake for £358 million.

Sources close to the matter confirmed that 3i and STAR stand to reap respective return multiples of 3.3x and 3.4x on the transaction. Both 3i and STAR declined to comment on return figures, while Morgan Stanley couldn’t be reached before press time.

All three originally invested in the company in December 2010. Ben Loomes, managing partner and co-head of infrastructure at 3i, told Infrastructure Investor that the consortium had sought to strengthen the business along three main lines: extend its existing leases and develop the fleet, negotiate better rates and stabilise cash flows, and refinance the company’s debt.

The latter was achieved through the issuance of three long-dated public bonds totalling £1.1 billion in December 2010 and March 2011, a private placement of £150 million in December 2012 and two further bank refinancings in November 2013 and November 2014.
Loomes said it was unusual for 3i to sell assets after four years, as the firm’s aim was to hold investments over the long term. But Cheung Kong had come forward with “an exceptional price”, he explained, allowing 3i to “crystallise value for its shareholders.”

Eversholt owns about 28 percent of the UK passenger rolling stock, and its 19 fleets are leased to 11 train operating companies. It also owns and leases a fleet of freight locomotives.

The company was the largest asset in 3i’s portfolio. Asked how the transaction proceeds would be redeployed, Loomes said the firm expects to be bidding on a range of core infrastructure assets in sectors including utilities and transport over the next three to six months.