Spanish gas bolt-on is ‘quintessential’ Morgan Stanley infra deal

The €450m acquisition of additional gas connection points in the Madrid region is poised to make Morgan Stanley Infrastructure Partners the third largest gas company in Spain, as well as to add to a tally of exclusive deals chief executive Sadek Wahba’s been tracking over the course of investing his $4bn fund.

Morgan Stanley Infrastructure Partners’ recent deal to acquire a Spanish gas distribution network for €450 million is a “quintessential” example of how the $4 billion fund does business, according to chief executive Sadek Wahba.

The deal will give Morgan Stanley an additional 300,000 natural gas distribution points in the Madrid region. It will also add to a key statistic Wahba’s been tracking for his fund: exclusive deals.

Though the firm has gained visibility for winning auctions for flagship assets like the Chicago parking meter concession, its exclusive deals that more often find their way into Wahba’s fund, which is now about 75 percent committed.

“We’ve done 13 deals, including this one. Nine or ten were done on a purely exclusive, negotiated basis,” he says.

In this case, even though Morgan Stanley’s platform company for the acquisition, Madrileña Red de Gas was born out of a limited auction, the 300,000 connection point bolt-on turned out to be exclusive.

In 2009, Morgan Stanley Infrastructure Partners was invited to bid on a limited auction for a natural gas distribution network being sold by Spanish utility Gas Natural. Morgan Stanley and Portuguese utility Galp Energia teamed up to bid €800 million for the business, Madrileña Red de Gas, which delivers natural gas to more than 500,000 connection points in the Madrid metropolitan area. That deal closed in April 2010.

“Fast forward nine months later, and we did an exclusive deal for 300,000 connection points,” Wahba says. The seller was the same Gas Natural that had earlier sold its Madrid business to MSIP in auction.

“We are now the third largest [gas] company in Spain and the second in Madrid,” Wahba says. “That’s the kind of thing that I think is a quintessential MSIP deal, where we capitalise on our existing platform and we make another, additional platform acquisition,” he says.

Besides developed markets like Spain, the firm continues its push into emerging markets like India, and the Middle East and Northern Africa. The firm is close to buying a stake in the Indian subsidiary of Spanish developer Isolux Corsan for $200 million, according to media reports. And Morgan Stanley’s plans to develop a joint venture with Orascom Construction Industries, an Egyptian infrastructure developer, to jointly invest in the Middle East, are still ongoing despite the turmoil in the region.

“Of course we will monitor the situation closely and proceed only when we feel the risks are manageable.  But even while there may be uncertainty in the short-term, there is still a need for roads, bridges, water, waste water management . . . so it doesn’t change anything in terms of infrastructure needs in the long run,” Wahba says.

Read more about Morgan Stanley Infrastructure Partners’ approach and strategy in the March issue of Infrastructure Investor, which includes a keynote interview with Wahba. Subscribers can click here to read the story.