BCI and Macquarie Acquire Big Stake in National Grid's Gas Unit
Britain’s National Grid said on Sunday it would sell a 60% stake in its British gas transmission and metering business to Australia’s Macquarie Asset Management and British Columbia Investment Management Corporation as it shifts towards electricity.
The deal implies an enterprise value for the unit of about 9.6 billion pounds ($12.7 billion), the company said in a statement.
Macquarie said its investment will ensure the transmission system will play a leading role in delivering the UK’s net-zero by 2050 target, by supporting hydrogen’s role in the energy mix.
National Grid will receive about 2.2 billion pounds in cash and about 2 billion pounds from additional debt financing following completion of the deal.
National Grid’s gas transmission business includes a 7,000-kilometer pipe network across the UK, among the largest gas transmission businesses in the country.
Following the transaction, the London-listed company said it will own a 40% minority stake via a new holding company called GasT TopCo and it also has an option to sell this remaining stake.
IPE Real Assets reports Macquarie, BCI to buy stake in National Grid’s gas transmission, metering arm:
A consortium comprising Macquarie Asset Management and British Columbia Investment Management Corporation (BCI) has agreed to buy a 60% stake in National Grid’s £9.6bn (€11.2bn) UK gas transmission and metering business.
As part of the deal, the consortium also has the option to buy the remaining 40% stake in the business at a future date, details of which will be announced if the option is exercised by the consortium.
National Grid is an energy company operating in the UK and US. The company owns and operates the 7,660km UK gas transmission system and an independent gas metering business.
Martin Bradley, the head of Macquarie Asset Management’s real assets team in EMEA, said: “The national transmission system is a critical enabler of the UK’s energy transition, providing the flexibility and reserve energy needed in the electricity system as the deployment of renewable sources of generation accelerates.
“However, if the UK’s net-zero by 2050 target is to be met, the country must have a next-generation transmission backbone to power homes and businesses with renewable energy. Backed by our significant investment, the transmission system will play a leading role in making the network ready for this transition.”
In doing so it will support the expansion of hydrogen’s role in the energy mix to deliver a competitive edge to the UK and its industry, while working closely with the government and Ofgem to maintain security of supply, Bradley said.
Lincoln Webb, the executive VP and global head of infrastructure and renewable resources at BCI, said: “This investment aligns well with our diversified portfolio of regulated utilities that securely deliver critical services to customers.
”We believe National Grid’s innovative decarbonisation strategy will ensure the business plays a leadership role in supporting the UK to achieve net-zero carbon emissions on target by 2050, while meeting consumer demand for reliable networks.”
John Pettigrew, the chief executive of National Grid, said: “The consortium has a long-term commitment to the UK with significant experience in owning and operating infrastructure assets.
”I look forward to our partnership and continuing to deliver safe and reliable gas service at the least cost to consumers.”
BCI put out this statement on this deal:
Macquarie Asset Management and British Columbia Investment Management Corporation (“the Consortium”) have reached an agreement to acquire a 60 per cent stake in National Grid’s gas transmission and metering business. The terms of the transaction imply an enterprise value for the business of approximately £9.6 billion[1].
National Grid owns and operates the UK’s regulated national gas transmission system and an independent gas metering business. The 7,660-kilometre transmission system plays a critical role in the UK energy landscape, reliably transporting the gas needed to heat homes and power industry and electricity generation.
The Consortium will partner with National Grid to ensure the national gas transmission system and metering business remain secure, safe, and reliable while enabling the UK to accelerate its transition away from fossil fuels, at least cost to consumers. The Consortium invests on behalf of long-term institutional investors including pension and insurance funds, and intends to remain invested in the business over multiple regulatory periods, having acquired its stake under existing RIIO-2 regulatory obligations.
As part of this transaction, the Consortium has also entered into an option agreement with National Grid for the potential acquisition of the remaining 40 per cent stake in the business on broadly similar terms, subject to necessary adjustments. Further details will be announced if the option is exercised by the Consortium.
Martin Bradley, Head of Macquarie Asset Management’s Real Assets team in EMEA, said: “The national transmission system is a critical enabler of the UK’s energy transition, providing the flexibility and reserve energy needed in the electricity system as the deployment of renewable sources of generation accelerates. However, if the UK’s net-zero by 2050 target is to be met, the country must have a next-generation transmission backbone to power homes and businesses with renewable energy. Backed by our significant investment, the transmission system will play a leading role in making the network ready for this transition. In doing so it will support the expansion of hydrogen’s role in the energy mix to deliver a competitive edge to the UK and its industry, while working closely with the Government and Ofgem to maintain security of supply.”
Lincoln Webb, Executive Vice President and Global Head of Infrastructure & Renewable Resources at BCI, said: “This investment aligns well with our diversified portfolio of regulated utilities that securely deliver critical services to customers. We believe National Grid’s innovative decarbonisation strategy will ensure the business plays a leadership role in supporting the UK to achieve net zero carbon emissions on target by 2050, while meeting consumer demand for reliable networks.”
John Pettigrew, Chief Executive of National Grid, said: “Today’s announcement is a strong result for all our stakeholders, including employees and customers. The Consortium has a long-term commitment to the UK with significant experience in owning and operating infrastructure assets. I look forward to our partnership and continuing to deliver safe and reliable gas service at the least cost to consumers. I would also like to thank my colleagues in Gas Transmission and Metering for their hard work that has helped us reach this important milestone.”
An increased role for hydrogen in the energy mix, and by extension development of the network, is a core element of the UK Government’s Ten Point Plan for a Green Industrial Revolution. Hydrogen offers a flexible, low carbon, and storable source of energy that can also decarbonise hard to abate sectors including heating and key industrial processes.
The Consortium will actively support and develop several projects currently being progressed across the national gas transmission system to ensure the opportunities presented by hydrogen to the UK are maximised. FutureGrid, which is utilising decommissioned transmission assets to demonstrate how hydrogen can be delivered safely and reliably using existing infrastructure, could help unlock plans to build an initial hydrogen ‘backbone’ network through investment to link key production sites and industrial clusters by 2030.
Completion of the transaction will be subject to certain antitrust and regulatory conditions. Subject to these clearances, the Consortium expects that the transaction will complete in the second half of calendar year 2022.
[1] Includes debt-like items and provisions of approximately £0.2 billion.
About Macquarie Asset Management
Macquarie Asset Management is a global asset manager that aims to deliver positive impact for everyone. Trusted by institutions, pension funds, governments, and individuals to manage more than £403 billion in assets globally, we provide access to specialist investment expertise across a range of capabilities including fixed income, equities, multi-asset solutions, private credit, infrastructure, renewables, natural assets, real estate, and asset finance.
Macquarie Asset Management is part of Macquarie Group, a diversified financial group providing clients with asset management, finance, banking, advisory and risk and capital solutions across debt, equity, and commodities. Founded in 1969, Macquarie Group employs approximately 17,000 people in 33 markets and is listed on the Australian Securities Exchange.
All figures as at 31 December 2021 For more information, please visit macquarie.com.
About BCI
With C$199.6 billion of assets under management as of March 31, 2021, BCI is one of Canada’s largest institutional investors. Based in Victoria, British Columbia, BCI is a long-term investor that invests across a range of asset classes: fixed income; public equities; private equity; infrastructure; renewable resources; real estate; and commercial mortgages. BCI’s clients include public sector pension plans, insurance, and special purpose funds. BCI’s Infrastructure & Renewable Resources program, valued at over C$20.0 billion, invests in tangible long-life assets that include a portfolio of direct investments in companies across a variety of sectors spanning regulated utilities, energy, telecommunications, and transportation, as well as investments in timberlands and agri-businesses. These companies operate in stable and mature regulatory environments, provide opportunities for future capital investments, and have the potential to generate steady returns and cash yields for our clients. The program is diversified across North America, Asia, Australia, Europe, and South America.
About National Grid
National Grid lies at the heart of a transforming energy system, spanning the UK and the US. Our businesses supply gas and electricity, safely, reliably and efficiently to millions of customers and communities. But we also drive change through engineering innovation and by incubating new ideas with the power to revolutionise our industry.
National Grid is pioneering ways to decarbonise the energy system; from building interconnectors to allow the UK to share clean energy with our neighbours in Europe, to investing in renewable energy generation in the United States. As one of the largest investor-owned energy companies in the world, National Grid is at the centre of a clean, fair and affordable energy future, where tackling climate change and reaching net zero is a key priority.
For more information, please visit nationalgrid.com.
National Grid also put out statement on this deal:
National Grid plc (“National Grid”) today announces that it has agreed to sell a 60% equity interest in its UK gas transmission and metering business (“NGG”) to a consortium (the “Consortium”) of long-term infrastructure investors (the “Transaction”).
The Consortium is comprised of Macquarie Asset Management, a global asset manager and the world’s largest infrastructure manager, and British Columbia Investment Management Corporation (“BCI”), one of Canada’s largest institutional investors. As announced in March 2021, the Transaction forms part of National Grid’s strategic pivot towards electricity and follows last year’s acquisition of Western Power Distribution (“WPD”), the UK’s largest electricity distribution business, and announced sale of The Narragansett Electric Company (“NECO”) in the US.
The terms of the Transaction imply an enterprise value for NGG of approximately £9.6 billion[1]. On completion, National Grid will receive approximately £2.2 billion in cash consideration (subject to customary completion adjustments)[2]. Following the Transaction, National Grid will own a 40% minority equity interest in NGG via a new holding company called “GasT TopCo”. In addition, National Grid will also receive approximately £2.0 billion from additional debt financing at completion. As at March 2022, NGG’s regulated asset value is estimated to be approximately £6.6 billion and its net debt is estimated to be approximately £3.8 billion.
National Grid has also entered into an option agreement with the Consortium for the potential sale of the remaining 40% of equity in GasT TopCo (the “Further Interest”). The option may be exercised by the Consortium between 1 January 2023 and 30 June 2023 (subject to change depending on the timing of the closing of the Transaction). If the option is exercised, the consideration for the Further Interest is expected to be paid in cash to National Grid on broadly similar terms to the Transaction, subject to adjustment for dividends paid in the business at the time of exercise. Further details will be announced if the option is exercised.
Completion of the Transaction will be subject to certain antitrust and regulatory conditions. Subject to these clearances, National Grid expects that the Transaction will complete in the second half of calendar year 2022.
On completion, the Transaction together with the proposed sale of NECO, will:
- Increase the balance of National Grid’s portfolio towards electricity, with the proportion of the Group’s assets in electricity growing from c.60% to c.70%;
- Significantly enhance National Grid’s central role in the delivery of the UK’s net zero targets;
- Underpin National Grid’s 6 to 8% asset growth target for longer;
- Enable National Grid to maintain a strong balance sheet with its strong investment grade credit rating, supporting its sustainable dividend policy.
[1]Includes debt-like items and provisions of approximately £0.2 billion.
[2] Assuming expected completion in the second half of calendar year 2022.
John Pettigrew, Chief Executive of National Grid, said:
“This transaction further enhances our role in delivering the UK’s energy transition, pivots our portfolio towards electricity, whilst ensuring the security of the energy supply for the country. Alongside our plans to invest up to £35 billion in energy infrastructure over the next five years, the series of transactions announced last March will strengthen our long-term growth prospects, and drive long-term value for shareholders.
Today’s announcement is a strong result for all our stakeholders, including employees and customers. The Consortium has a long-term commitment to the UK with significant experience in owning and operating infrastructure assets. I look forward to our partnership and continuing to deliver safe and reliable gas service at the least cost to consumers. I would also like to thank my colleagues in Gas Transmission and Metering for their hard work that has helped us reach this important milestone.”
Martin Bradley, Head of Macquarie Asset Management’s Real Assets team in EMEA, said:
“The national transmission system is a critical enabler of the UK’s energy transition, providing the flexibility and reserve energy needed in the electricity system as the deployment of renewable sources of generation accelerates. However, if the UK’s net-zero by 2050 target is to be met, the country must have a next-generation transmission backbone to power homes and businesses with renewable energy.
Backed by our significant investment, the transmission system will play a leading role in making the network ready for this transition. In doing so it will support the expansion of hydrogen’s role in the energy mix to deliver a competitive edge to the UK and its industry, while working closely with the Government and Ofgem to maintain security of supply.”
Lincoln Webb, Executive Vice President and Global Head of Infrastructure & Renewable Resources at BCI, said:
“This investment aligns well with our diversified portfolio of regulated utilities that securely deliver critical services to customers. We believe National Grid’s innovative decarbonisation strategy will ensure the business plays a leadership role in supporting the UK to achieve net zero carbon emissions on target by 2050, while meeting consumer demand for reliable networks.”
Following completion of the Transaction, National Grid intends to use proceeds of approximately £4.2 billion towards repayment of the bridge financing facility that was drawn as part of the acquisition of WPD. For the purposes of Listing Rule 10.4, NGG’s gross assets as at 30 September 2021 were £6.1 billion. For the period 1 April 2020 to 31 March 2021 NGG group generated profit before tax of £406 million.
The Transaction constitutes a class 2 transaction for the purposes of the UK Financial Conduct Authority's Listing Rules and, as such, does not require National Grid shareholders' approval.
Following completion, National Grid’s interest in GasT TopCo will be accounted for under the equity method of accounting.
National Grid was advised by Barclays, Goldman Sachs, and Robey Warshaw.
About National Grid Gas
National Grid Gas owns and operates the regulated gas National Transmission System (NTS) in Great Britain, and also owns a regulated gas metering business.
As both the transmission owner and system operator, NGG owns, builds and operates the high-pressure NTS with day-to-day responsibility for balancing supply and demand in real time and facilitates the connection of assets to the transmission system. National Grid Gas transmission network comprises approximately 7,660 kilometres of high-pressure pipe and 23 compressor stations connecting to 8 distribution networks and other third-party independent systems.
NGG also owns and operates an independent metering business, the largest owner of traditional gas meters in the UK with approximately 8.4 million domestic and commercial meters as of March 2021. The business’ activities broadly cover: asset procurement and logistics management; meter installation, maintenance, exchange and removal; and, customer service provision.
This is a huge deal for BCI and Macquarie Asset Management (The Consortium).
The terms of the transaction imply an enterprise value for the business of approximately £9.6 billion or $12.7 billion (this includes debt-like items of approximately £0.2 billion).
Moreover, as part of this transaction, the Consortium has also entered into an option agreement with National Grid for the potential acquisition of the remaining 40% stake in the business "on broadly similar terms, subject to necessary adjustments."
It has to exercise that option, if it so chooses, in the first half of next year.
If the Consortium does buy the remaining 40% stake, it means that BCI and Macquarie Asset Management might own National Grid’s gas unit outright.
Even if the Consortium doesn't exercise the option, it will still own a majority stake in the gas transmission and metering business of a leading energy company operating in the UK and US, delivering electricity and gas safely, reliably and efficiently to its customers – all while working towards a clean energy future.
Why is National Grid selling this stake? Its press release states the reason:
As announced in March 2021, the Transaction forms part of National Grid’s strategic pivot towards electricity and follows last year’s acquisition of Western Power Distribution (“WPD”), the UK’s largest electricity distribution business, and announced sale of The Narragansett Electric Company (“NECO”) in the US.
A strategic pivot towards electricity means its assets in electricity will be moving from c.60% to c.70%, significantly advancing the company's role in the delivery of the UK's net zero targets.
Think about it, BCI is investing significantly in a company that will continue to offer great cash flows over the long run and help reduce greenhouse gas emissions.
Last March, BCI set climate-related targets for its public markets, setting a goal to reduce the carbon exposure in its global public equities portfolio by 30% by 2025 (using 2019 as a baseline).
This year, I am seeing deals like this one and the acquisition of Reden Solar which it also did with Macquarie which demonstrate that BCI is serious about lowering its carbon footprint in private markets too.
What I like about these deals is that they are partnering up with a great partner (Macquarie) to scale into great assets that deliver cleaner energy.
All this to say hats off to Lincoln Webb, Executive Vice President and Global Head of Infrastructure & Renewable Resources at BCI,and his team for putting together some great deals this quarter.
National Grid’s gas unit fits very nicely into BCI's infrastructure portfolio and it will allow them to continue delivering on their mandate and paying pensions for a long time.
Remember, unlike bonds which are getting clobbered this quarter, regulated utility assets have an embedded inflation protection as rates are regulated and take inflation into account.
This is why large pensions like BCI, OTPP and others are looking to build their core infrastructure assets.
Alright, let me wrap it up there. This is a huge deal for BCI and its members, including Innovate BC which BCI welcomed as a new client very recently:
Innovate BC is a Government of British Columbia crown agency reporting to the Ministry of Jobs, Economic Recovery, and Innovation. Innovate BC helps foster innovation in B.C. so that British Columbians in all regions of the province can benefit from a thriving, sustainable and inclusive innovation economy. They fund and deliver programs that support the growth of the B.C. economy by helping companies start and scale, train talent that meets labour market needs, and encourage technology development, commercialization and adoption.
“We are thrilled to be selected as the investment manager for Innovate BC’s Natural Resources and Applied Sciences Endowment fund.” said David Morhart, executive vice president, corporate & investor relations. “This special purpose fund promotes innovation in critical areas of our provincial economy and it’s our pleasure to support this important work by applying our investment expertise to optimize fund returns in support of their goals.”
“After a very thorough review of the proposals received, Innovate BC’s Finance & Audit Committee was pleased to recommend BCI to manage the Natural Resources and Applied Sciences Endowment Fund. We have engaged closely with BCI’s team to review the different portfolio models and feel confident in the option we have chosen.” said Lesley Esford, chair of finance & audit committee for Innovate BC.
I can publicly assure Lesley Esford, chair of finance & audit committee for Innovate BC, that they made the right decision.
Below, hydrogen has the potential to deliver a low carbon alternative to natural gas, significantly reducing the UK’s carbon emissions. FutureGrid kicked off in April 2021 and tested how National Grid can safely transport hydrogen in its gas network.
Second, electricity is the life blood of our society; we use it every day for almost every imaginable purpose and we must decarbonise it to meet the existential threat of climate change. We are the first generation to fully understand climate change, and the last to be able to do anything about it. So what action have we already taken, and what can we expect to see in future?
James Kelloway from National Grid ESO’s Energy Intelligence Team talks to Duncan Burt, Chief Sustainability Officer and Isabella O'Dowd, Head of Climate at WWF about the pivotal moments of the last twenty years in Great Britain’s power system decarbonisation.
Third, a panel discussion held at COP26, where representatives of National Grid discuss what it really means when people refer to green grids.
Next, transport is the highest emitter of greenhouse gases in the UK. For the UK to deliver its net zero carbon emissions target by 2050 there will need to be huge changes to the transport we use, whether that's by air, sea or land.
Find out which new fuels could replace the fossil fuels that so much of our transport currently relies on, as well as how electric vehicles (EVs) work, and how infrastructure will need to change to support our new cleaner transport options.
Lastly, the world's longest subsea electricity interconnector, North Sea Link, stretches 720km under the North Sea to share renewable electricity between the UK and Norway. Getting to this point has taken six years, more than 4 million working hours and incredible engineering feats to navigate through Norwegian fjords, mountains, and across the North Sea. Meet some of the brilliant people from National Grid and Statnett who made this possible.
You can see more cool videos from National Grid here.
The more I learn about National Grid, the more I understand why BCI and Macquarie decided to buy a big stake in its British gas transmission and metering business.
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