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UK funds lured to National Grid auction

Dalmore, Hermes and Amber Infrastructure have teamed up with Macquarie, Allianz and CIC to bid for the utility’s £11bn gas network.

Three UK fund managers have given domestic gravitas to an international consortium in the running for National Grid’s domestic gas unit at a time when foreign investment in trophy infrastructure assets faces heightened scrutiny.

London-based Dalmore Capital, Hermes Investment Management and Amber Infrastructure are among the members of a Macquarie Infrastructure and Real Assets-led team that submitted a bid on Monday for a majority stake in the gas distribution business, sources close to the matter told Infrastructure Investor. It is understood that the group also includes China Investment Corporation and Allianz Capital Partners.

All firms cited above either declined to comment or did not respond to a request for comment.

Chinese firms Fosun and China Resources Gas, as well as Hong Kong-based Cheung Kong Infrastructure, are also thought to have considered bidding for the asset, though it remains unclear if they followed through.

National Grid is the sole owner and operator of gas transmission infrastructure in the UK. It also owns four of the country’s eight regional distribution networks, allowing it to serve about 11 million homes in areas including London, the West Midlands and north-west England. The mooted sale is expected to value the unit at about £11 billion ($13.8 billion; €13 billion) including debt.

During an earning call on 10 November, National Grid chief executive John Pettigrew said that the company’s “work to separate gas distribution from the rest of the UK” was “nearing completion”. “One major achievement has been securing attractive financing arrangements for the new entity,” he added.

In September, the group raised £3 billion through a senior unsecured note, the largest sterling bond ever issued by a non-financial institution, topped up with €750 million through a separate transaction. Most of the proceeds were earmarked for the UK gas business, National Grid finance director Andrew Bonfield said on the call, as per a transcript provided by investment website Seeking Alpha.

The same month, as part of its desire to create a “proper industrial strategy”, the government of Prime Minister Theresa May launched a review of the Enterprise Act 2002. The exercise will look at the UK’s “public interest regime” and assess circumstances under which the government could have its say over foreign investors’ control of critical infrastructure projects.

The move came after Downing Street gave the go-ahead to Hinkley Point C, an £18 billion nuclear power project in which EDF and China’s CGN are co-investors, putting an end to uncertainty over its final decision.