Cheung Kong Infrastructure Holdings

Tycoon fires up deal for British gas firm

PUBLISHED : Thursday, 26 July, 2012, 12:00am
UPDATED : Thursday, 26 July, 2012, 12:00am

Li Ka-shing has expanded his global business empire, with a group of companies controlled by the tycoon signing a deal to acquire British gas firm Wales & West Utilities (WWU) for GBP645 million (HK$7.75 billion).

If the deal goes ahead, Hong Kong's richest man will control a quarter of Britain's gas networks.

Li is already the biggest foreign investor in Britain, owning London's electricity network, a local water company, Felixstowe port and telecoms firm 3.

Three Hong Kong-listed firms controlled by Li - Cheung Kong Infrastructure (CKI), Power Assets Holdings and Cheung Kong - will each take a 30 per cent stake in WWU, while the Li Ka Shing Foundation will acquire the remaining 10 per cent. Li's consortium will assume WWU's net debt of GBP1.31 billion. CKI group managing director Kam Hing-lam said CKI and related companies would continue to pursue investment opportunities that would bring steady and secure profits from around the world.

Kam declined to comment on reports that CKI aimed to acquire British airports and utilities in the European Union.

Li and Australian fund Industry Funds Management are competing to partner Manchester Airports Group to buy Stansted Airport near London for up to GBP1 billion, the Manchester Evening News reported last month. The successful partner would get a 35 per cent stake in a joint venture with Manchester Airports Group, which would include the group's four airports in Manchester, East Midlands, Bournemouth and Humberside, the report said.

WWU's net debt of GBP1.31 billion combined with the acquisition price of GBP645 billion make for a total enterprise value of about GBP1.96 billion, 9.5 per cent above WWU's estimated regulated asset value of GBP1.79 billion. The regulated asset value is the value of the gas company's regulated assets.

'The premium to the regulated asset value of WWU is only 9.5 per cent. It's pretty cheap,' one analyst said.

Given that CKI, Power Assets and the Li Ka Shing Foundation own another British gas company, Northern Gas Networks, the acquisition of WWU will give Li two of the eight major gas networks in the country, serving a quarter of the British population. WWU serves 7.4 million people in Wales and southwest England.

The acquisition still needs the approval of the European Commission. The deal was expected to be finalised by September 30, Kam said.

There was a high probability that the commission would approve the WWU acquisition because there should be no objection to Li owning two British gas networks, since other companies already owned multiple gas networks in the country, the analyst said.

CKI chief financial officer Dominic Chan Loi-shun said the acquisition would raise CKI's gearing ratio from 7 per cent to 11 per cent and Power Assets' gearing ratio from 32 per cent to 36 per cent.

The WWU acquisition follows a GBP4.8 billion investment by CKI, Cheung Kong Holdings and the Li Ka Shing Foundation in Britain's Northumbrian Water, in October 2011 and a GBP5.78 billion investment by CKI, Power Assets and the Li Ka Shing Foundation in UK Power Networks, which owns London's electricity networks, in 2010.

For fiscal year 2013, the acquisition of WWU would boost CKI's net profit by 3 per cent and PAH's net profit by 1 per cent, Hong Kong-based analyst Dave Dai said in a Daiwa Capital Markets report.