Insurers, pensions in €1.3bn German network deal

A consortium of insurance companies and pension funds, led by Commerzbank subsidiary Commerz Real, has reached agreement to acquire a 74.9% stake in Amprion, the largest of four German transmission system operators, from RWE.

RWE, the German utility, has agreed to sell a 74.9 percent stake in Amprion, a transmission system operator, to a consortium led by Commerz Real, the real estate arm of Germany’s Commerzbank. Members of the consortium include insurance companies Munich Re, ERGO, MEAG, Swisslife and Talanx, as well as the Westfalen-Lippe doctors’ pension fund.

The sale price is based on an overall enterprise value of €1.3 billion (as at 1 January 2011) and represents almost the entire regulated asset base of Amprion as recognised by the German regulator. It is around eight times Amprion’s recurrent earnings before interest, taxes, depreciation and amortisation.  

RWE is retaining a 25.1 percent stake in Amprion and also has a temporary 10.8 percent stake in the consortium. Commerz Real’s 13 percent stake in the consortium is also temporary until it can “sell on the shareholding to further investors in the short term” according to an RWE statement announcing the deal.

Amprion is the largest of Germany’s four power transmission network businesses, with around 11,000 kilometres of power lines.

“Network expansion requires very high levels of investment and we are spreading this burden,” said Juergen Grossman, chief executive of RWE, in the statement. “Amprion plans to invest over €3 billion over the next 10 years. In the investor consortium we have gained a reliable, financially sound partner with a long-term strategy.”

RWE said the deal would reduce its net debt and “make a contribution towards the company’s aim of improving its debt situation”. The firm is undertaking a divestment programme as part of a mid-term planning strategy involving assets worth up to €8 billion.

The deal is indicative of pension funds and insurance companies’ increasing willingness to invest directly in infrastructure assets rather than through funds. 

It is also the third similar deal in recent times. In March 2010, Scandinavian utility Vattenfall sold 50Hertz Tramsmission, Germany’s third-largest electricity grid, to Belgian transmission firm Elia (60 percent) and Australian fund manager Industry Funds Management (40 percent) for €800 million. Then in March this year, German utility E.ON sold Central Networks, its UK electricity distribution business, to America’s PPL Corporation for £3.6 billion (€4.1 billion; $5.8 billion).

Completion of the Amprion deal is expected in the third quarter of this year, but is subject to approval by the supervisory board of RWE as well as anti-trust authorities.

Earlier today, ratings agency Moody’s assigned Amprion a provisional (P) A3 rating which, according to Moody’s vice-president/senior analyst Richard Miratsky, reflected:

i) a relatively low business risk profile underpinned by the company's monopolistic transmission network activities;

ii) a thoroughly defined, but relatively new and untested, incentive-based regulatory regime, which is undergoing modifications in terms of the application of relatively complex principles;

iii) the company's sizeable capital expenditure (capex) programme, which will require additional funding over the medium to long term; and

iv) expected weakening of the company’s currently strong financial profile as its leverage gradually increases from initially moderate levels.