Deals

EDF to get final bids by end of May

But a source familiar with the process says the bid deadline might get pushed back slightly as the three consortia in the race prepare their binding bids.

-

The three consortia in the race to acquire French energy group EDF’s UK electricity network are expected to submit their final offers for the asset by the end of May, a source familiar with the process told InfrastructureInvestor.com.
 
However, the source indicated that the deadline might suffer a slight delay, as the three consortia ready their binding bids. A Scottish and Southern Energy (SSE)/Borealis team, a Macquarie/Canada Pension Plan Investment Board/Abu Dhabi Investment Authority consortium and Cheung Kong Infrastructure Holdings, a fund owned by Asia’s wealthiest man, Li Ka-shing, are currently bidding for the asset.

The source indicated Cheung Kong Infrastructure may bring in subsidiary Hong Kong Electric, one of Hong Kong’s main electricity suppliers, to help run the asset – if it isn’t already working with it during the bid process.
 
EDF’s UK network distributes power to almost eight million homes in the south-east and east of England and was put up for sale in October 2008 to help cut the group’s debt. The company’s UK assets have a RAB of close to £4 billion (€4.4 billion; $6.4 billion) with a potential buyer expected to have to write an equity cheque of between £1 billion and £1.5 billion.
 
Technical expertise is seen as a key component to extracting value from EDF’s UK network after regulator Ofgem unveiled tough new rules in December 2009, capping shareholder returns more than was initially expected and potentially dampening EDF’s prospects of a good price.
 
Ofgem said the weighted average cost of capital (WACC) for electricity operators should be set at 4 percent post-tax – half a percentage point below returns allowed by recent regulation in the water sector. The WACC is the average of the cost of equity and debt and effectively regulates what sort of returns shareholders can expect from their investments in the sector.
 
It has also implemented stringent performance criteria regulating everything from price increases to the baseline return on equity a company can earn – which can fluctuate between 3 percent and 13 percent depending on performance.
 
Barclays Capital, BNP Paribas and Deutsche Bank are running the sale for EDF and are said to be preparing a securitisation package covering 80 percent to 85 percent of the deal’s regulated asset base (RAB).