Cheung Kong in attractive UK gas network deal
Updated: 2012-07-26 07:08
By Oswald chen (HK Edition)
Companies from Cheung Kong Group join hands in a deal to buy UK gas company Wales and West Utilities for HK$7.75 billion. Provided to China Daily
A consortium led by Cheung Kong Infrastructure Holdings Ltd (CKI) of the Cheung Kong Group controlled by tycoon Li Ka-shing has agreed to buy UK gas company Wales and West Utilities (WWU) for 645 million pounds (HK$7.75 billion), the first time ever that three companies from the Cheung Kong Group have joined forces to acquire a major gas distribution network project.
The consortium comprising Cheung Kong (Holdings) Ltd (CKH), Cheung Kong Infrastructure Holdings Ltd (CKI), Power Assets Holdings Ltd (PAH) and Li Ka Shing Foundation Limited (LKSF), a charity established by the 83-year old Hong Kong billionaire, is to acquire WWU in cash, according to a statement filed with the local bourse on Wednesday. CKH, CKI and PAH will each hold a 30 percent stake in the investment while the remaining 10 percent stake will be held by LKSF.
"For CKH, the acquisition is considered to be a quality investment which would provide long-term steady recurring income contribution to the CKH Group and reflects CKH's strategy to embrace new growth opportunities through diversification and globalisation," CKH Deputy Managing Director Edmond Ip said in the Wednesday press conference, adding that CKH would still focus on its core property business despite investing in the UK infrastructure business.
The acquisition of WWU - consisting of 35,000 km of pipelines and 18 gas storage sites - will double the tycoon's UK gas business portfolio, following the acquisition of Northern Gas Networks by Cheung Kong and its partners in 2004. The two networks combined will provide gas distribution services to around 25 percent of the UK population, with a service area covering about 27 percent of the nation's total area.
Li's group is paying 5.33 times WWU's earnings before interest and tax compared with the median of 15.97 times, according to data compiled by Bloomberg based on 10 comparable deals. The target company had a loss of 63.1 million pounds in the year ended March 31, 2012.
"The price tag looks reasonable given the target company's large-scale operations," said Evan Li, a Hong Kong-based utility analyst at Standard Chartered Plc. "Adding utility assets globally is CKI's development strategy and they may buy more down the road."
"The WWU acquisition can help bolster market shares and enhance cash-flow of the infrastructure business to CKH, CKI and PAH respectively," AMTD Securities Business Manager Kenny Tang told China Daily.
"The reason why the three Cheung Kong companies have joined together to bid for WWU is that CKI may just want to spare more cash to make future acquisitions," Tang added.
H.L. Kam, the group managing director of CKI, stressed that the company's current cash position is sufficient to make the acquisition. "The cash held by CKI and PAH are HK$8 billion and HK$6.6 billion respectively. Even after the acquisition, the gearing ratio of the two respective companies will be 11 percent and 36 percent," Kam said
The deal, which is subject to approval by the European Commission, would add to Cheung Kong's assets in Britain, where the group agreed to buy utility Northumbrian Water Group last August for 2.41 billion pounds. Cheung Kong Group also acquired Electricite de France SA's UK power networks for 5.8 billion pounds in 2010.
CKH share price decreased slightly by 0.9 percent to HK$98.1 per share while PAH's share price shed 1.6 percent to HK$59.25 per share after Wednesday's closing.
Share trading of CKI was suspended on Wednesday due to a planned share placement of $307 million. CKI share price has risen more than 8 percent so far this year, beating a 2.5 percent gain in the benchmark Hang Seng Index.
Reuters and Bloomberg contributed to this story
(HK Edition 07/26/2012 page2)