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The trend for major energy providers to dispose of non-core assets is providing a wealth of opportunities for investors. In order to capitalise on this activity, it is imperative that those with an interest in the sector can secure the right funding, particularly since these transactions often require significant capital and are complex in nature.When Electricité de France (EDF) disposed of its UK-based regulated and non-regulated network activities to the UK Power Networks consortium led by Cheung Kong Infrastructure Holdings (CKI), Lloyds Bank jointly provided £1.175 billion to fund the acquisition, which represented the largest northAsian investment into Europe.
In 2010, EDF, a French integrated energy operator active in the generation, distribution, transmission, supply and trading of electrical energy, looked to sell its UK-based regulated and non-regulated network activities.CKI saw the opportunity to strengthen its global portfolio of electricity investments, which currently includes assets in the UK, Australia, Canada, New Zealand, China and Thailand.The acquisition, which completed in December 2010, will also add to CKI’s previous long-term investments in the UK which include Northern Gas Networks, Cambridge Water and Southern Water.
Following the deal, UK Power Networks will take over the UK’s largest power distribution network, delivering electricity to more than eight million customers in London, the East of England and the South East.These regulated networks distribute nearly a quarter of the UK’s electricity, with coverage spanning over 29,000 square kilometres, carrying approximately 89 TWh of electricity each year to virtually every corporate, industrial and household consumer of mains electricity. In addition UKPN has shareholding interests in a number of specialist non-regulated networks for extremely large consumers including various London airports, the London Underground, and the Channel Tunnel Rail Link.
The acquisition was funded by a finance package put together by Lloyds Bank, Royal Bank of Scotland, Deutsche Bank, BNP Paribas, Barclays Capital, Mizuho Bank and Santander.Lloyds Bank jointly provided £1.175 billion to fund the acquisition of the regulated and non-regulated businesses of EDF. We acted as Mandated Lead Arranger and Interest Rate Hedge Coordinator for the bank debt.The Lloyds Bank team was selected due to its prior relationship with the sponsor, through its ownership of Northern Gas Networks (where we are one of four main banks), as well as our proven track record to deliver on complex deals. Our ability to offer expertise in key product areas within Lloyds Bank Capital Markets was extremely important to ensure a successful outcome.
Basil Scarsella, Chief Executive Officer, UK Power Networks, said: “The bid by CKI for EDF Energy’s UK distribution networks in London and SE England raised £1.2bn of debt in a loan market that was still uncertain from a funding perspective. We were delighted to win the tender.“It was a major transaction for both the M&A and loan markets in 2010, and represented north Asia’s biggest single takeover in Europe. We worked on the bid with banking partners who could get comfortable with a combination of regulated and non-regulated businesses and work to tight deadlines with an appropriate level of flexibility.“The team at Lloyds Bank were highly supportive and responsive throughout the process and were one of the core banks that we wanted in the deal. They provided expert advice on debt structuring, takeout and hedging strategy.”Mike Chappell, Head of Economic Infrastructure, Lloyds Bank, said: “The new owners of the UK network activities have a proven track record in successfully operating utility companies and electricity distribution businesses around the world and we have every confidence that they will build on the strong foundation set out by EDF.“We’re hugely proud to be involved in this high profile transaction which provides further evidence of our commitment to supporting companies across the energy sector. It also gives us another opportunity to demonstrate our appetite and ability to support complex and sizeable deals, and deliver tailored solutions by leveraging the strengths of the wider Lloyds Banking Group.”