July 25, 2012 6:50 am

Li Ka-shing to buy UK gas group

Hong Kong billionaire Li Ka-shing has added to his collection of British utilities after a consortium led by his flagship Cheung Kong Holdings agreed to buy Wales and West Utilities, the UK gas company, for £645m.

The deal adds another strand to Mr Li’s long-term strategy of buying utilities in the UK, Canada and Australia because they offer stable regulatory environments, common law jurisdictions and predictable returns.

Wales and West Utilities manages gas transportation assets and gas distribution as well as meter services throughout Wales and the south west of England, the Cheung Kong-led consortium said in a statement to the Hong Kong stock exchange on Wednesday. The consortium was advised by Nomura.

The company’s distribution network supplies 7.4m customers over an area covering about one-sixth of the UK.

The sellers of the company are a group that included vehicles for Macquarie’s European and Global infrastructure funds, a subsidiary of the Canada Pension Plan Investment Board and Australia’s AMP Capital.

For the financial year ended March 31 2012, Wales and West Utilities made a consolidated loss of £63.1m. Cheung Kong, Cheung Kong Infrastructure, and Power Assets will each hold 30 per cent in the joint venture company, with Mr Li’s private charitable foundation holding the remaining 10 per cent stake.

Mr Li is well known for his preference for shopping for assets in a downturn. Last year, the billionaire’s Cheung Kong Infrastructure acquired Northumbrian Water Group in the UK for £2.41bn. Last week, CKI reported an 18 per cent rise in interim net profit mainly because of its UK portfolio, including Northumbrian.

In 2010, CKI paid £5.8bn for EDF’s UK power grids as part of a consortium. The Hong Kong company’s net profit for the six months to June reached HK$4.7bn (US$606m) and its UK portfolio was responsible for about half of its pre-tax profit.

The company said last week it was well positioned to make further acquisitions as it had HK$8bn (US$1bn) in cash and a 7 per cent net debt-to-equity ratio. CKI’s gearing is comfortably lower than the 14.3 per cent it stood at in 2011, according to Bloomberg data. By the same measure, Centrica, the UK energy group, was at 65 per cent last year and the National Grid at 220 per cent.

“A challenging economic landscape may also create opportunities. Acquisition prospects for quality assets often arise during periods of instability,” Victor Li, chairman of Cheung Kong Infrastructure and Mr Li’s heir apparent, said in a statement last week.

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