Two years after it started the sales process, Vattenfall has sold the entirety of its German grid to a consortium of Belgian electricity operator Elia and Australian investor Industry Funds Management (IFM) for an enterprise value of €810 million.
The purchase will give Elia a 60 percent stake in Germany’s third-largest electricity operator, known as 50Hertz Transmission, with IFM owning the remaining 40 percent. Elia said it will finance its maiden investment outside Belgium through a capital increase. 50Hertz Transmission’s electricity network spans some 9,700 kilometres across eastern Germany.
Christian Seymour, IFM’s head of infrastructure for Europe, said the purchase is fully funded and that IFM does not believe in overleveraging its assets, which indicates the consortium might not use any debt, or will use a modest amount of debt. The purchase price is thought to comprise around €450 million of equity and €350 million of debt.
Before Elia and IFM joined the sales process, Vattenfall was in exclusive negotiations with a Goldman Sachs/Allianz/RREEF consortium. But the talks broke down last November, with Vattenfall saying they had disagreed on several issues, including the purchase price. The consortium is said to have put in a bid of about €500 million, but when asked today, Tuomo Hatakka, head of Vattenfall’s central European business, declined to confirm that valuation.
One infrastructure fund manager previously told InfrastructureInvestor.com that he thought infrastructure investors might have a hard time competing with strategics like Elia for this type of asset. In his view, Germany’s regulatory framework is too unclear. For example, regulation caps returns on equity at 8.5 percent unless the asset is outperforming, but the investor said there are not clear criteria in the regulation defining this.
He also said the German regulator has high capex requirements and that this, combined with regulatory uncertainty, had limited the amount of funds he could raise on the market to an amount well below the regulator’s capex requirements. At today’s press conference, Hatakka said about €3 billion will have to be invested in the German grid until 2016, with €600 million in priority investments.
Daniel Dobbeni, Elia’s chief executive, highlighted at today’s press conference that there are several synergies between the German grid and Elia’s Belgian operations. “It’s the same business, the same regulation and the same expertise,” he told reporters.
Vattenfall sold its German grid as part of a European Union directive to stimulate competition and diversify ownership in the country’s electricity sector.