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National Grid : UK Power Reserve sale attracts China's state-owned grids - sources

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09/29/2017 | 05:25pm CET

HONG KONG/LONDON (Reuters) - UK Power Reserve (UKPR), a British electricity firm, put itself up for sale this week and has attracted the interest of at least two state-owned Chinese power grid companies, two sources told Reuters.

Firms interested in a company that provides back-up electricity to the National Grid (>> National Grid plc) at times of power shortage include Chinese state-owned State Grid Corp and China Southern Power Grid, as well as some other industry players and financial groups, both sources said.

The interest comes as foreign takeovers of sensitive assets such as electricity providers in Britain, particularly by the Chinese, are under growing political scrutiny.

After approving a $24 billion plan for a Chinese-backed nuclear power plant in southwest England, British Prime Minister Theresa May said her government would take a more cautious approach to similar foreign investments in the future to safeguard national security.

UK Power Reserve and RBC, which is advising on the sale, declined to comment. State Grid did not immediately respond to Reuters queries for comment and China Southern Power Grid could not be reached for comment.

Based in the central English town of Solihull, UK Power Reserve has a portfolio of over 800 megawatts of small-scale, local thermal power generation and battery storage assets.

In 2015, a consortium comprised of private equity firms Equistone and Inflexion bought a minority stake in UKPR for an undisclosed amount as part of a management buyout deal.

The decision to sell follows several disposals in recent years of regulated grid businesses by European energy firms seeking to cut debt and raise funds to invest in new infrastructure projects.

The company, which sources said is likely to be valued at less than 500 million pounds ($670 million), has also seen several of its long-term contracts affected by regulator Ofgem's plan to cut allowances.

Britain's electricity capacity market pays power producers to make available back-up power at short notice, giving a guaranteed revenue stream on top of the wholesale electricity price.

The company's earnings before interest, taxes, depreciation and amortisation (EBITDA) stood at 16 million pounds ($21.4 million) in the financial year ending March 2017.

Power and gas networks have become an attractive asset class among pension funds and institutional investors as their return is regulated by governments, giving investors a predictable source of income even when an economy is struggling.

Chinese power and utilities companies have invested a lot recently in foreign power and gas networks, buying assets in the UK, Spain, Australia and Latin America.

State Grid and China Southern Grid are also interested in buying Finland's second-biggest electricity distributor, Elenia Oy, Reuters reported last week.

State Grid is also considering buying electricity distribution subsidiaries that will be sold by Brazil's state-owned Centrais Elétricas Brasileiras SA <ELET3.SA> by the end of the year.

($1 = 0.7477 pounds)

(Reporting by Clara Denina in London and Kane Wu in Hong Kong; additional reporting by Susanna Twidale in London; Editing by Keith Weir)

By Kane Wu and Clara Denina

Stocks treated in this article : Royal Bank of Canada, National Grid plc
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Financials ( GBP)
Sales 2018 15 085 M
EBIT 2018 3 633 M
Net income 2018 2 035 M
Debt 2018 24 189 M
Yield 2018 6,20%
P/E ratio 2018 12,63
P/E ratio 2019 12,15
EV / Sales 2018 3,28x
EV / Sales 2019 3,37x
Capitalization 25 314 M
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Income Statement Evolution
Mean consensus OUTPERFORM
Number of Analysts 18
Average target price 9,66  GBP
Spread / Average Target 29%
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John Mark Pettigrew Chief Executive Officer & Executive Director
Peter Oliver Gershon Non-Executive Chairman
Andrew R. J. Bonfield Executive Director & Finance Director
Paul Golby Independent Non-Executive Director
Nora Mead Brownell Independent Non-Executive Director
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