National Grid finds a buyer
Australian bank Macquarie is to acquire a chunk of the UK’s gas network. Does the deal make sense for either party? Matthew Partridge reports
Australian bank Macquarie is to spend £4.2bn on a controlling stake in a critical part of the UK’s gas network, says Gill Plimmer in the Financial Times. The deal will involve it taking a 60% slice of National Grid’s gas transmission and metering business, with an option to buy the remaining 40% in the future. Macquarie will acquire 7,660km of pipes transporting gas to heat homes, and power industry and electricity generation across Britain – this on top of its ownership of Cadent, which runs half of the eight local gas distribution networks, which it bought in 2017.
National Grid had been looking for a buyer to take a majority stake in its transmission unit for some time, says Archie Mitchell in the Daily Mail. The decision to sell to Macquarie will, however, “worry many in the City” because of its “questionable” track record. Indeed, it is already known as the “Vampire Kangaroo”, a nickname it acquired after “developing a reputation for buying companies, loading them with debt and sucking out money for shareholders”. The deal also comes at a time “when foreign investors are under scrutiny as fears grow that the UK is losing control of key businesses and infrastructure”.
The Vampire Kangaroo’s record
Macquarie claims to have invested £50bn in UK infrastructure over the last 15 years, says Tom Howard in The Times. It owns “a large slice” of Southern Water, a number of airports, including Aberdeen and Southampton, as well as Kcom, which owns the telephone network in the Hull area. But its record is far from spotless. When the firm ran Thames Water between 2006 and 2016, it drew criticism for loading it with debt while paying huge dividends, and ended up being fined £20m for pumping sewage into the Thames.
The deal shows that the two companies have very different visions of Britain’s energy supply, say George Hay and Antony Currie on Breakingviews. The Australian bank is clearly betting that Britain will depend on natural gas for decades to come – its plans to eventually pump hydrogen through the gas pipelines “may only start to pan out in the 2030s”. National Grid, on the other hand, thinks “electricity demand will surge over the next few decades as key sectors like transport switch from oil to electrons as a power source”, which is why it “splashed out” $11bn on a UK power distribution business last year.
The National Grid Gas (NGG) sale, early completion of a second UK/France network and the Western Power acquisition mean that National Grid’s portfolio will be weighted 70% toward electric, says Hargreaves Lansdown’s Laura Hoy. That approach isn’t risk-free. The NGG sale could “face pushback from lawmakers now that energy independence has become a priority” and its ability to make money from electric power will be at least partially determined by regulators. Still, such risks are a “necessary evil” as NGG positions itself for a “lower-carbon future” and gives the firm the “pros of a utility, but also growth opportunities”.