National Grid to Sell Cadent Stake for 1.2 Billion Pounds

(Bloomberg) -- National Grid Plc agreed to sell its remaining 25 percent stake in the U.K.'s biggest gas distribution business to focus on assets that deliver higher growth.

The U.K. network manager signed an accord with a company controlled by a consortium of Macquarie Bank Ltd. and Allianz Capital Partners, as well as other infrastructure funds, that gives the option to complete between March and October next year, National Grid said in a statement. The consortium bought 61 percent of the distribution business last year, when another option for 14 percent was also agreed.

Cadent Gas Ltd. includes four regional gas networks, serving about 11 million customers through 130,000 kilometers (81,000 miles) of pipelines. British utility assets have historically attracted foreign companies that favor steady income generation, such as pension funds and other asset managers.

“National Grid has long said this segment is growing more slowly than the rest of the group,” RBC Europe Ltd. said in a note to clients. “And despite being a cash contributor to the group, there are better opportunities elsewhere to deploy capital.”

The cash proceeds from the potential sale to Quadgas Investments Bidco Ltd., excluding dividends received up to 31 March 2019 and certain other adjustments, would be about 1.2 billion pounds ($1.65 billion).

Read more about the initial stake sale here

The company is also under pressure after regulator Ofgem proposed a cut to price controls that will significantly cut returns for energy network companies from 2021. Ofgem has set out a record low level for the rate grids can charge to run and maintain networks. The proposals would cut earnings per share by 6 percent to 12 percent a year for National Grid in 2022 and by 4 percent to 7 percent for SSE, according to RBC estimates.

National Grid extended a run that's taken the stock to its highest level since Jan. 9. Shares rose as much as 0.8 percent to 849.1 pence and traded at 846 pence at 8:31 a.m. in London.

The sale would allow National Grid to focus on assets that deliver growth of between 5 percent and 7 percent, the company said.

--With assistance from Rachel Morison

To contact the reporter on this story: Lars Paulsson in London at lpaulsson@bloomberg.net.

To contact the editors responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net, Andrew Reierson

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