Korean firms to buy stake in UK gas business for $356 mn in secondary investment

  • 2017-02-17

Hanwha Life Insurance Co Ltd., Hyundai Marine & Fire Insurance Co. Ltd. and other South Korean institutional investors will jointly acquire a 4.7% stake in the UK gas distribution networks of National Grid Plc. for £285 million ($356 million), in their secondary infrastructure investment.

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The equity investment is being made through Dalmore Capital Limited and Hermes Investment Management which joined a Macquarie-led consortium to buy a majority stake in the gas distribution business, according to investment banking sources on Feb. 16.

Last December, the consortium bought a 61% stake in the gas business unit of National Grid for £3.6 billion. The consortium also features China Investment Corporation (CIC), Allianz Capital Partners, Qatar Investment Authority and Amber Infrastructure.

Both Hermes Investment and Dalmore Capital have been looking for buyers of their equity interest in the UK gas pipeline networks, which serves 11 million customers in six cities in the UK.

In South Korea, Dalmore Capital has sold down the equity interest to Hanwha Life for £155 million (a 2.7% stake) and the Korea Scientists and Engineers Mutual-aid Association for £30 million, out of the £265 million worth of an equity stake it had secured in the UK infrastructure. Mirae Asset Global Investments Co. Ltd. acted as a domestic agent.

Hermes Investment is working on the resale of its equity interest in the gas business unit for £513 million. In South Korea, it is set to raise £100 million through Samsung’s asset management firm: the investors include Hyundai Marine for £30 million, Samsung Life Insurance Co. Ltd. for £35 million, KB Insurance Co. Ltd for £20 million and NH Investment & Securities for £10 million.

The investment underscores soaring appetite for Europe’s alternative investment among South Korean investors, as rising US interest rates ate into returns from real estate and infrastructure from the world’s biggest economy. Korean insurance companies have preferred debt instruments to equity interests which are classified as risky assets, because they are required to set aside 12% of equity investments as payment reserves.

“SOC (social overhead capital) in developed countries is not only stable investment, but they produce high returns,” said an insurance company source. “The gas business unit (of National Grid) is an attractive investment opportunity for local insurance companies which are increasing alternative investments to boost returns.”

The expected internal rate of return from the UK gas distribution unit is 7 to 8% a year, separate from possible extra gains from selling the equity stake in the future.

When the equity purchase by the Macquarie-led consortium completes in March as expected, Macquarie and China Investment Corporation (CIC) will hold a 14.5% stake and a 10.5% stake, respectively. The equity interest held by Allianz Capital and Qatar Investment Authority will be 10.2% and 8.5% each, according to the sources.

By JiHoon Lee and Chang Jae Yoo

lizi@hankyung.com

<Edited by Yeonhee Kim>