Macquarie has agreed to purchase a controlling stake in a critical part of the UK’s gas network for £4.2bn and promised “significant” investment to upgrade it for a green economy.
The Australian group, the world’s largest infrastructure investor, has teamed up with British Columbia Investment, one of Canada’s largest asset managers, to buy a 60 per stake in National Grid’s gas transmission and metering business.
The deal means Macquarie will take over 7,660km of pipes transporting gas to heat homes and power industry and electricity generation across Britain.
The consortium also has an option to buy the remaining 40 per cent stake from National Grid, the FTSE 100 company that controls the national electricity transmission network in the UK.
The sale by National Grid will increase its weighting towards electricity and move away from fossil fuels, including gas. Last year it bought Western Power Distribution, the UK’s largest electricity distribution business, for £7.8bn from PPL.
It will also strengthen Macquarie’s reach in the UK’s gas pipeline infrastructure. The deal covers the high-pressure pipelines that carry gas over long distances to the regional distribution networks, which then take it to homes and businesses.
Macquarie already owns Cadent — which runs half of the eight local gas distribution networks after buying them from National Grid for £5.4bn in 2017, in a consortium of investors that include the Qatar and Chinese sovereign wealth funds.
Sunday’s price implies an enterprise value of £9.6bn, which equates to a multiple of 1.26 times the value of the asset price set by the regulator Ofgem. Net debt accounts for approximately £3.8bn of the deal.
The UK’s gas network is switching to new hydrogen technologies as part of its plan to move away from fossil fuels by 2050.
Martin Bradley, head of Macquarie Asset Management’s Real Assets team in Europe, said the UK needed a next-generation transmission backbone if it was to meet its target.
“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,” he added.
About 70 per cent of the iron pipes on the national gas network have already been replaced with hydrogen-ready plastic.
Appetite for infrastructure assets, which provide a guaranteed long-term stable income backed by the government, has soared during the pandemic at a time when other sectors such as retail and leisure have suffered.
Macquarie is also bidding with private equity group KKR to buy Britain’s largest electricity distributor UK Power Networks from companies controlled by Hong Kong’s billionaire Li family. The asset transmits electricity to 8.3mn homes and businesses in the south and east of England.
The cost of switching is also contributing to soaring electricity and gas bills. Maintaining the gas network adds about £9 to the average consumer’s annual gas bill, according to Ofgem.
Macquarie has spent about £50bn on UK utility infrastructure over the past 15 years. Among its assets is a majority stake in Southern Water, one of the biggest regional water monopolies, Aberdeen, Glasgow and Southampton airports and Arqiva, a telecoms transmission company. It is best known for its controversial ownership of Thames Water, which it sold in 2017.
National Grid was advised by Barclays, Goldman Sachs and Robey Warshaw.
Macquarie to buy £4.2bn controlling stake in UK gas network
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