By Sophie Sassard and Karolin Schaps
Reuters (Reuters) – Hong Kong billionaire Li Ka-Shing is likely to face significant regulatory hurdles if he bids for a stake in National Grid’s British gas networks, banking and industry sources said, because of similar assets he already owns.
Li’s Cheung Kong Infrastructure Holdings Ltd is preparing a bid for a majority stake in National Grid’s four gas distribution networks, whose overall value is up to 11 billion pounds ($14 billion), the Financial Times said.
But bankers and industry sources close to the deal strongly questioned CKI’s ability to acquire these assets, because the conglomerate already owns stakes in two networks in the U.K. Gaining more control over gas distribution could damage competition, they said.
“Everyone has done a lot of work on this (competition issues) and as a result, we all know it would be incredibly difficult for CKI to buy more networks in the UK,” said one of the sources, speaking on condition of anonymity because the matter is private.
There are eight main gas distribution networks (GDN) in Britain, covering different regions. National Grid Gas operates networks in East Midlands, West Midlands, northwest England and east England.
CKI became one of the major sector players by acquiring EDF’s electricity distribution network in 2010 for 5.7 billion pounds. The group now controls gas distribution in North East England, including Yorkshire and northern Cumbria, as well as Wales and southwest England.
Another major player is SGN, which operates in Scotland and southern England. SGN shareholder SSE has also put up to a third of its 50% stake up for sale.
Li Ka-Shing entering the race would be good news for the National Grid as the seller as increased competition could lead to a higher price for what is excepted to be one of the largest infrastructure transaction in the UK this year.
So far, two consortia of investors are seen as the main contenders and are expected to submit non-binding bids ahead of a Friday deadline. One consortium is led by Australian fund Macquarie and includes German insurer Allianz, Dalmore Capital and China’s CIC; the other is led by Canada’s Pension Plan (CPPIB) and comprises sovereign wealth funds from Kuwait and Abu Dhabi.
The sale is expected to conclude in the first quarter of next year.
A way for the Hong Kong investor to overcome regulatory hurdles would have been to bid only for selected assets, but National Grid has made clear it wants to sell a majority stake of the business in one chunk, the sources said.
CKI, one of the country’s largest investors with assets across mobile telecommunication, ports and power, is a well-known figure in the UK and would not face scrutiny from the government, the sources said.
“The politics would be OK but they is no way regulators would clear that deal,” said another source involved in the deal and who’s worked with Li Ka-Shing on UK deals in the past.
“We have stated in the past that we would advise government and merger authorities if we were concerned that a merger could reduce our ability to regulate effectively,” said a spokesman for energy regulator Ofgem, which does not have any powers to intervene in the sale directly.
National Grid declined to comment. CKI did not immediately reply to a request for comment.
($1 = 0.7707 pounds)
(Editing by Ruth Pitchford)