SSE has agreed to sell a 16.7% equity stake in Scotia Gas Networks to wholly owned subsidiaries of the Abu Dhabi Investment Authority (ADIA), for £621 million based on an effective economic date of 1 April 2016. SSE owns half of SGN; the other owners are the Borealis Infrastructure Fund (partly owned by a Canadian pension fund) and a fund owned by the Ontario Teachers Pension Fund.
The transaction is expected to be completed by the end of this month, with the consideration being settled in cash. The sale follows a review announced by SSE in May 2016. SSE will retain a 33.3% equity stake in SGN.
Analysts Agency Partners said it thought ADIA had overpaid for the asset. it said, “Although the RAV multiple in the SGN transaction looks high, it is significantly below our estimates of the current implied network valuation in the SSE share price.
“We consequently believe ADIA has over paid, and possibly not properly taken into account regulatory developments, such as high likelihood of movement to CPI indexation in future price reviews.”
Moody’s said, “This is among the highest valuations achieved for a UK regulated utility and well above our previous estimate that the sale could raise £500 million for SSE, based on a more conservative 30% premium to RAV.”
When it announced the review, SSE said that should a sale be completed it would expect to use the proceeds to return value to its shareholders or to invest to create value for shareholders, should there be the right opportunity. SSE said it will set out its intentions with regard to the proceeds in its interim results statement on 9 November.
SSE acquired its 50% equity stake in SGN in 2005 for a total of £505 million. Since 2005 dividend payments and other distributions to SSE have totalled over £750m, SSE says.