UK National Grid Cuts Gas Exposure
UK power and gas transmission systems operator National Grid is considering the sale of a majority stake in the gas grid (NGG), it said March 18 as it restructures its business. It will start the process later this year and when complete, gas will account for 30% of its business, compared with 40% today.
It also announced the simultaneous purchase of UK network Western Power Distribution (WPD) – the biggest of its kind – for £7.8 ($10.9)bn and the sale of the Narragansett Electric Company in the US for $3.8bn, in both cases with PPL as the counterparty. It will finance the deal with a bridging loan, to be repaid from the proceeds of the sale of NGG and other sources, and is subject to shareholder approval.
Electricity distribution is expected to see a high level of asset growth and significantly enhance National Grid's central role in the delivery of the UK's net zero targets, given the complementary nature of transmission and distribution.
The distribution company purchase and the grid sale will underpin National Grid's 5%-7% asset growth target for longer, further supporting National Grid's dividend policy while expecting to maintain its current overall strong investment grade credit rating.
NGG owns National Grid Metering, which made an operating profit of £158mn in the year to March 2020. NGG had gross assets of £10.6bn and reported a profit before tax of £356mn for the year to March 31, making just over £500mn in all. It does not own deregulated businesses such as Grain LNG, the major UK import terminal.
National Grid said it was expecting a high price, given NGG's high-quality operations, proven delivery, the strategic nature of the business, its regulatory certainty following the RIIO-T2 determination and the key role that the network will have to play in the energy transition.
National Grid CEO John Pettigrew said the transactions would be "transformational for our UK portfolio." The company "will also deliver attractive shareholder value from the NGG sale in due course." He said the deals would "strengthen our long-term growth prospects, enhance our role in the UK's energy transition and drive long term shareholder value."