Brookfield Infra shortlisted on ENW sale

18 April 2019 - 12:00 am UTC

Brookfield Asset Management’s infrastructure arm is among bidders that have been shortlisted in the sale of Electricity North West, ahead of binding offers due on 3 June, sources said.

The Canadian infrastructure fund manager, which has not been linked to the sale previously, is likely to have bid via its super-core infrastructure fund, the sources said.

An acquisition of ENW would be the second investment by Brookfield Super-Core Infrastructure Partners (BSIP) – which was set up late last year and targets mature, cash-generating core infrastructure assets with predominantly contracted or regulated revenues in North America, Europe and Australasia. BSIP’s first investment, in the fourth quarter of last year, was a portfolio of assets mostly focused on telecom and renewable power sectors across the United States.

Sources with knowledge of the sale of the distribution network operator by First State and JP Morgan said that a consortium of Equitix, Kansai Electric Power and local government pension fund platform GLIL Infrastructure has also been shortlisted.

Also through to the next round is Hong Kong’s CKI, which already has electricity grid and other utility investments in neighbouring parts of the UK, and Spanish power group Iberdrola, which also owns neighbouring grid infrastructure, the sources added.

One source said that Macquarie submitted an initial bid through its super-core fund but was not shortlisted. 

Sources previously predicted that the sale price will be around GBP 2bn, a 14% premium to the company’s GBP 1.76bn regulatory asset base. 

But the sale price might be muted by the fact that the asset has GBP 200m of public bonds priced at 8.875% – a relatively heavy burden for the borrower – which don’t mature until 2026. The buyer is unlikely to redeem the bonds early, sources said.

Furthermore, Moody’s said last year that the company’s inflation-linked swaps and loans combined total around 100% of its RAB, plus its debts are “materially more expensive” than other network operators in the UK. 

Buyers are likely to seek to refinance high yield bonds maturing with institutional debt in the next few years, potentially including a 6.125% GBP 200m loan due in 2021.

But all this is weighed against ENW’s solid outperformance of regulatory assumptions around its operational performance, such as number of customer interruptions and cost of grid reinforcement. 

Also, its RAB – on which its equity returns are linked to – are expected to rise due to the widespread introduction of electric vehicles and heat pumps in new homes.

Brookfield is currently conducting a USD 5bn (GBP 3.8bn) fundraise for BSIP, which held a USD 925.5m first close in December. The BSIP fund targets a lower net IRR of 8% than Brookfield’s flagship funds and aims to return an average cash yield of 5-6%.

Aside from its new supercore fund, Brookfield’s funds include its fourth global infrastructure fund which is due to hold a first close next quarter, as reported

Recent deals Brookfield has been involved in include its acquisition of two Australian data centres from Blackstone earlier this year and the acquisition of Canadian home services provider Enercare last year. 

Brookfield and Iberdrola declined to comment. Equitix and GLIL did not immediately respond to a request for comment. CKI and Kansai could not immediately be reached for comment.

 

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