Elenia plots district heating sale

04 February 2019 - 12:00 am UTC

Infrastructure fund-owned Finnish energy group Elenia is preparing a sale of its district heating business as it looks to focus on its electricity distribution business, sources said.

Elenia recently appointed DC Advisory and Danske Bank to advise on the process, it is understood. Elenia is owned by Allianz Capital Partners (45%), Macquarie Super Core Infrastructure Fund (45%) and the Finnish state pension fund VER (10%).

The three investors bought Elenia in 2017 from Goldman Sachs Infrastructure Partners and 3i Infrastructure for an enterprise value of EUR 3.6bn. Elenia, Allianz, Macquarie and VER declined to comment.

Elenia operates electricity distribution and district heating assets central Finland. Last available full year figures for the district heating business, a smaller part of the company than the electricity distribution operations, show EBITDA of EUR 25.6m for 2017, in line with the previous year.

The sale multiple is likely to be in the region of recent district heating deals in the region, including the almost 19x EV/EBITDA multiple Swedish district heating business Varmevarden was sold for in 2017, sources said. This would imply a valuation approaching EUR 500m for Elenia’s district heating business.

One industry observer following the process said that it makes sense for Elenia to dispose of the district heating business given the lack of integration with the rest of Elenia. The electricity distribution and district heating businesses have different management boards. 

Elenia’s district heating business is the second biggest in Finland, after power group Fortum’s. It operates in 10 municipalities and has around 85,000 users. The business includes the pipes connected to buildings that supply them with heat and plants that generate the heat, including one powered by wood-based fuels that Elenia said last month it will invest EUR 30m in.

The assets are likely to be of interest to infrastructure funds and possibly strategic investors, sources said.

District heating involves heating homes and other buildings centrally rather than each one having a boiler. It is attractive to infrastructure investors because it benefits from stable revenue, backed up by government contracts. 

News of its plans to sell the district heating business come after it emerged late last year that UK infrastructure investor Aberdeen Standard Investments made its first investment in the sector with the acquisition of a 49% stake in municipally-owned Riihimäen Kaukolämpö Oy in southern Finland.

Finland has more 200 district heating companies, with most owned by municipalities, according to Elenia’s website.

Infrastructure funds have also recently targeted district heating in other Scandinavian countries, with recent deals including Whitehelm last year buying a 49% stake in Norwegian district heating company Kvitebjorn Varme and Swedish infrastructure investor Infranode, Norwegian pension fund KLP and French investment manager Mirova earlier in 2018 buying the Oslofjord Varme, also in Norway. 


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