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UPDATE 3-Li Ka-shing to buy EDF's UK grids for $8.6 bln-sources
Fri, 30th Jul 2010 05:53
By Peter Dinkloh and Quentin Webb
FRANKFURT/LONDON, July 30 (Reuters) - Two firms controlled by Asia's richest man, Li Ka-shing, are to buy UK power grids from France's EDF for over 5.5 billion pounds ($8.6 billion), giving them a foothold in more lucrative overseas markets.
Cheung Kong Infrastructure (CKI), together with Hongkong Electric (HKE), won the auction for the three power distribution grids and the private power networks from EDF, the world's second-largest utility, three people told Reuters.
EDF will announce the sale in Paris later on Friday, when it is due to also release its first-half results, the sources said. CKI said it would make an announcement after 0430 GMT.
One source close to the deal said it marked the biggest North East Asian investment in Europe.
The sources, who have direct knowledge of the process, declined to be identified as the sale is still confidential.
The French power provider declined to comment. Trading in shares of HKE and CKI was suspended in Hong Kong.
'It fits the bill,' said Macquarie analyst Wei Sim. 'That's the type of asset they're looking for -- in English-speaking, OECD countries. Historically, where they've gone wrong was in greenfield projects, but these are long-term contracts with regulated returns.'
EDF Energy Networks, EDF's UK unit, distributes electricity to 7.8 million customers and generates around a fifth of Britain's electricity.
Utilities throughout Europe are shedding assets to pay for billions of euros of takeovers and to raise money to invest in new power plants.
The deal comes as part of a slew of grid sales by European utilities, partly for regulatory reasons and partly because the assets no longer provide the returns the utilities have expected.
Hutchison Whampoa Ltd, chaired by billionaire Li, owns 85 percent of CKI. Cheung Kong Infrastructure owns close to 39 pct of HKE.
LIMITED GROWTH AT HOME
For CKI, led by Li's son Victor, analysts say the move would double its UK presence -- a key market as it looks to expand globally given the limited room for growth in Hong Kong.
CKI has previously invested in Britain's gas and water industries and owns utility businesses in Australia, Canada and New Zealand.
'I think the market will take it positively,' Macquarie's Sim said. 'The things they've done in the past 6-12 months were value accretive, but not large enough to move the needle. This is large enough to make a difference in their capital structure.'
'This is going to bring the company from a high-cash position to a relatively high-gearing position.'
HKE and CKI beat the only other remaining bidder in the process, a rival consortium that included Macquarie Group , Canada Pension Plan (CPP) and the Abu Dhabi Investment Authority (ADIA).
The likely acquisition should also silence critics concerned that CKI has been sitting on too much cash for too long. The company has cash reserves of HK$10 billion, which it needs to deploy to get a higher return, according to CLSA.
The transaction would be the largest such deal since October 2006, Thomson Reuters data shows, when a group of investors including Macquarie funds bought Thames Water for 8 billion pounds and rival water firm AWG was sold to funds including CPP for 5.57 billion pounds.
The acquisition could help boost CKI's earnings by 10-15 percent next year as it puts its cash to better use, said an analyst at a major Western bank, who could not be named due to company policy. It could also boost HKE's 2011 earnings by 5-10 percent, he added.
'It's definitely a good catalyst for the stock because the EDF deal has been happening for more than six months now,' he said. 'The market has been very disappointed about repeated delays to this deal.'
The credit crisis hampered funding for deals that rely heavily on cheap debt in order to ramp up returns from low-margin infrastructure companies.
A significant part of the final price is explained by the unregulated private networks, one of the people familiar with the matter said.
The overall deal, taking the private networks into account, is roughly three-fifths debt-funded, this person added.
Both E.ON, the world's largest utility by sales, and Sweden's Vattenfall have sold their high-voltage, long-distance power grids in Germany.
Deutsche Bank, Barclays Capital and BNP Paribas advised EDF, while The Royal Bank of Scotland advised HKI and CKI.
(Additional reporting by Doug Young, Alison Lui and Sui-Lee Wee in HONG KONG and Michael Smith in SYDNEY; Editing by Don Durfee and Ian Geoghegan) (If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com) ($1=.6395 Pound) Keywords: EDF/UKGRIDS
(peter.dinkloh@reuters.com; +4969 7565 1345; Reuters Messaging peter.dinkloh.reuters.com@reuters.net)
COPYRIGHT
Copyright Thomson Reuters 2010. All rights reserved.
The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
FRANKFURT/LONDON, July 30 (Reuters) - Two firms controlled by Asia's richest man, Li Ka-shing, are to buy UK power grids from France's EDF for over 5.5 billion pounds ($8.6 billion), giving them a foothold in more lucrative overseas markets.
Cheung Kong Infrastructure (CKI), together with Hongkong Electric (HKE), won the auction for the three power distribution grids and the private power networks from EDF, the world's second-largest utility, three people told Reuters.
EDF will announce the sale in Paris later on Friday, when it is due to also release its first-half results, the sources said. CKI said it would make an announcement after 0430 GMT.
One source close to the deal said it marked the biggest North East Asian investment in Europe.
The sources, who have direct knowledge of the process, declined to be identified as the sale is still confidential.
The French power provider declined to comment. Trading in shares of HKE and CKI was suspended in Hong Kong.
'It fits the bill,' said Macquarie analyst Wei Sim. 'That's the type of asset they're looking for -- in English-speaking, OECD countries. Historically, where they've gone wrong was in greenfield projects, but these are long-term contracts with regulated returns.'
EDF Energy Networks, EDF's UK unit, distributes electricity to 7.8 million customers and generates around a fifth of Britain's electricity.
Utilities throughout Europe are shedding assets to pay for billions of euros of takeovers and to raise money to invest in new power plants.
The deal comes as part of a slew of grid sales by European utilities, partly for regulatory reasons and partly because the assets no longer provide the returns the utilities have expected.
Hutchison Whampoa Ltd, chaired by billionaire Li, owns 85 percent of CKI. Cheung Kong Infrastructure owns close to 39 pct of HKE.
LIMITED GROWTH AT HOME
For CKI, led by Li's son Victor, analysts say the move would double its UK presence -- a key market as it looks to expand globally given the limited room for growth in Hong Kong.
CKI has previously invested in Britain's gas and water industries and owns utility businesses in Australia, Canada and New Zealand.
'I think the market will take it positively,' Macquarie's Sim said. 'The things they've done in the past 6-12 months were value accretive, but not large enough to move the needle. This is large enough to make a difference in their capital structure.'
'This is going to bring the company from a high-cash position to a relatively high-gearing position.'
The likely acquisition should also silence critics concerned that CKI has been sitting on too much cash for too long. The company has cash reserves of HK$10 billion, which it needs to deploy to get a higher return, according to CLSA.
The transaction would be the largest such deal since October 2006, Thomson Reuters data shows, when a group of investors including Macquarie funds bought Thames Water for 8 billion pounds and rival water firm AWG was sold to funds including CPP for 5.57 billion pounds.
The acquisition could help boost CKI's earnings by 10-15 percent next year as it puts its cash to better use, said an analyst at a major Western bank, who could not be named due to company policy. It could also boost HKE's 2011 earnings by 5-10 percent, he added.
'It's definitely a good catalyst for the stock because the EDF deal has been happening for more than six months now,' he said. 'The market has been very disappointed about repeated delays to this deal.'
The credit crisis hampered funding for deals that rely heavily on cheap debt in order to ramp up returns from low-margin infrastructure companies.
A significant part of the final price is explained by the unregulated private networks, one of the people familiar with the matter said.
The overall deal, taking the private networks into account, is roughly three-fifths debt-funded, this person added.
Both E.ON, the world's largest utility by sales, and Sweden's Vattenfall have sold their high-voltage, long-distance power grids in Germany.
Deutsche Bank, Barclays Capital and BNP Paribas advised EDF, while The Royal Bank of Scotland advised HKI and CKI.
(Additional reporting by Doug Young, Alison Lui and Sui-Lee Wee in HONG KONG and Michael Smith in SYDNEY; Editing by Don Durfee and Ian Geoghegan) (If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com) ($1=.6395 Pound) Keywords: EDF/UKGRIDS
(peter.dinkloh@reuters.com; +4969 7565 1345; Reuters Messaging peter.dinkloh.reuters.com@reuters.net)
COPYRIGHT
Copyright Thomson Reuters 2010. All rights reserved.
The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
