Second time’s a charm for First State in €189m Swedegas deal

The group, which was an underbidder in EQT’s 2015 sale, has now succeeded in acquiring the transmission system operator, its second Swedish gas investment since March.

First State Investments has agreed to buy Swedish transmission system operator Swedegas in a deal with an equity value of SKr2.048 billion ($219.3 million; €188.8 million) from Spanish group Enagas and Belgian gas company Fluxys.

The owner and operator of the sole gas transmission network in Sweden has a 600km pipeline network and the move by the international arm of Colonial First State is its second investment in the gas sector in Sweden, after it bought E.ON Gas Sverige, the country’s largest distribution system operator, in March.

“While that was in isolation a modest investment, it was very much our intention to use that as a platform to consolidate the Swedish gas market and so this very much is the second step,” Marcus Ayre, partner, infrastructure investments at First State, told Infrastructure Investor.

The deal is the second time First State has attempted to buy Swedegas after falling short as the underbidder when the company was sold by EQT Infrastructure in 2015. Fluxys and Enagas said at the time that both had invested €100 million in addition to third-party debt.

“[After the E.ON deal] it was a very obvious conversation to have to see if Fluxys and Enagas had any appetite to sell,” Ayre added. “It was not a dramatically different price, taking into account the passage of time and the changes that have happened in that time.”

Enagas said the sale bagged the company a net IRR of 10 percent for its investment. First State has acquired Swedegas through its European Diversified Infrastructure Fund II, which targets gross returns of between 8 and 15 percent, according to pension fund documents.

The vehicle closed its second series of fundraising in June on €1.4 billion, bringing the fund’s total size to €2.1 billion. The final figure was double the initial €700 million targeted for the second round of fundraising and Ayre said a third series is expected to be launched “within the coming months or year”.

“We haven’t got a formal concrete plan yet, but I expect as we go through series II deployment, we’ll start raising series III,” he explained. “The fund has a hard-cap of €2.5 billion so there’s not a huge amount between the €2.1 billion we sit at today and the €2.5 billion.”

First State approached investors at the end of last year to ask for an extension to the hard-cap, although a spokeswoman said in June the group would not go beyond €2.5 billion. Ayre said the second series is now 35 percent invested, with the entire EDIF II at about 60 percent invested. Other assets in the fund include French district heating group Coriance, Portuguese wind platform Finerge and Danish ferry operator Scandlines.