Perth-based energy and networks giant SSE said on Monday it agreed to sell its entire 33.3% stake in gas distribution operator Scotia Gas Networks Ltd (SGN) for £1.2 billion to a consortium comprising existing SGN shareholder Ontario Teachers’ Pension Plan Board and Brookfield Super-Core Infrastructure Partners.
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 SSE shareholders’ approval.
At March 31, 2021, SGN had a regulated asset value (RAV) of £6 billion and SSE’s interest in SGN had a carrying value of £744.4 million and contributed £88.6 million to the group’s profits after tax.
“The transaction is based on an effective economic date of 31 March 2021 and is for a consideration of £1,225m in cash,” said SSE.
“It is expected to complete within the current financial year and is conditional on certain regulatory approvals.
“SSE initially acquired a 50% equity share in SGN in 2005 for a total of £505m, before selling a 16.7% stake to a wholly owned subsidiary of the Abu Dhabi Investment Authority (ADIA) in 2016.
“The consortium has also agreed to acquire the 16.7% stake in SGN owned by ADIA.”
SGN includes Scotland Gas Networks plc and Southern Gas Networks plc, two of the eight regulated gas distribution networks in England, Wales and Scotland, in addition to SGN Natural Gas Ltd, which provides gas to customers in the west of Northern Ireland as well as other non-regulated ancillary businesses.
“This deal will conclude SSE’s £2bn plus disposals programme announced in June 2020, with total proceeds amounting to over £2.7bn,” added SSE.
“The programme has realised significant value from non-core assets while intensifying SSE’s strategic focus on its core low-carbon electricity businesses and the transition to net zero.
“SSE’s strategy is to create value for shareholders and society in a sustainable way by developing, building, operating, and investing in the electricity infrastructure and businesses needed in the transition to net zero.
“Its strategic focus is on renewables and regulated electricity networks, businesses which have strong, net zero-aligned growth potential with common skills and capabilities in the development, construction, procurement, financing, and operation of world-class, highly technical electricity assets.
“The other businesses retained in the SSE group are highly complementary to this low-carbon core.
“The disposal proceeds will reduce net debt in the short term and will help support the delivery of SSE’s capital investment plans.
“As indicated in May, SSE will provide an update on these plans at its interim results in November.”
SSE finance director Gregor Alexander said: “SGN has been a hugely successful investment for SSE during the past 16 years.
“It is a strong business delivering consistently for customers and will have a key role to play in the future development of the hydrogen economy.
“However, it has become purely a financial investment for SSE as we have sharpened our focus on our low-carbon electricity core, and it is therefore the right time for SGN to continue to thrive under new ownership.
“We see significant growth opportunities in our core networks and renewables businesses in the transition to net zero and the capital we are releasing through our disposals programme will help enable us to maximise the delivery of our low-carbon electricity orientated strategy and ultimately create sustainable long-term value for customers, shareholders and society.
“Completion of our disposals programme will leave SSE more streamlined and strategically aligned than ever before, with a business mix that is very deliberate, highly effective, fully focused and well set to prosper on the journey to net zero and beyond.”
In total, Ontario Teachers’ will acquire an additional 12.5% of SGN and Brookfield will acquire a 37.5% stake in SGN.
StepStone Clients are participating in both the Brookfield and Ontario Teachers’ investments.
This means following completion of both transactions, SGN’s direct shareholders will comprise Ontario Teachers’ (37.5%), Brookfield (37.5%) and OMERS Infrastructure (25% unchanged).
Morgan Stanley and Credit Suisse acted as financial advisers and CMS Cameron McKenna Nabarro Olswang LLP as legal advisers to SSE.
Nomura acted as financial adviser and Freshfields Bruckhaus Deringer LLP acted as legal advisers to ADIA.
Evercore acted as financial adviser to Ontario Teachers’ and Linklaters acted as legal advisers to the consortium.