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| Open Grid Europe | |
| Size | €3.2 billion acquisition and financing of Open Grid Europe – Germany’s largest gas transmission network – from E.On |
| Date | August 2012 |
| Investor consortia | Macquarie European Infrastructure Fund IV, Infinity Investments (Abu Dhabi Investment Authority), British Columbia Investment Management Corporation, and MEAG Munich Ergo Asset Management |
| Lead financial adviser to consortia | Macquarie Capital |
| Second adviser to consortia | RBC Capital Markets |
| Financial adviser to E.On | Goldman Sachs |
| Mandated lead arrangers and underwriters | BNP Paribas, Crédit Agricole CIB, Commerzbank, Export Development Canada, ING, RBC Capital Markets, Scotiabank, Société Générale CIB, UniCredit |
| return to the Global Deals of the Year index | |
When a prime gas infrastructure asset is put up for sale in one of the richest and most powerful and well-regulated economies in the world it will always attract interest from potential acquirers keen to snap up a prized asset that could deliver attractive long-term returns.
Open Grid Europe, the largest gas transmission network in Germany, is one such asset. When German utility E.On put the network on the block last year, it attracted what looked like a who’s who list of some of the world’s largest infrastructure investors.
From German insurer Allianz, partly state-controlled utility GDF Suez, French insurer CNP Assurances and IFM Australian Infrastructure, to Belgium’s Fluxys, state-owned Dutch utility Gasunie, and the pension fund Canada Pension Plan, some of the most powerful investors in the global infrastructure sector lined up.
But while five separate consortia each launched competing bids for OGE, it was a Macquarie-led consortia, comprising Infinity Investments (Abu Dhabi Investment Authority), British Columbia Investment Management Corporation, and MEAG (Munich Ergo Asset Management), that eventually won with a bid of €3.2 billion, making it the largest European infrastructure investment last year by some margin.
Of course financing such a large deal is never easy, even in the best of times. But when it’s such a core infrastructure asset in a country as powerful as Germany, which boasts a strong regulatory framework, it’s a compelling proposition for any bank, and particularly the nine that drove the financing package.
BNP Paribas, Crédit Agricole CIB, Commerzbank, Export Development Canada, ING, RBC Capital Markets, Scotiabank, Société Générale CIB and UniCredit were mandated as lead arrangers and underwriters of the financing, which comprised a combination of limited-recourse debt – €2.2 billion acquisition loans, €450 million capex tranche and a €100 million revolver – and equity.
“As an existing investor in the sector, we were very confident in the asset that we were acquiring, our ability to understand the regulation, the investment thesis and the practical operations,” says Edward Beckley, head of Macquarie Infrastructure and Real Assets Europe (Mira), which led the winning consortia. “We had previously acquired a business called Thyssengas for our third fund, MEIF3. Thyssengas is a very similar business to Open Grid Europe, although it’s only about a sixth of the size.”
OGE’s scale is impressive. The network of pipelines stretches more than 12,000 kilometres across much of Germany. Its compressor station at Waidhaus on the German-Czech border is one of Europe’s largest entry hubs for Russian gas, which accounts for around a quarter of Europe’s gas supply.
“Part of the attraction of OGE was its location, part that it operates in a stable, well-regulated environment,” says Beckley. “When you buy any utility asset you take a great deal of comfort from the form of economic regulation that ensures investors will get a sensible return on capital invested over the long term.”
OGE was the first acquisition of Mira’s latest infrastructure fund, MEIF4, with its second acquisition following in December 2012 when Mira agreed to buy 35% of RWE Grid Holdings, which will own 80% of the Czech gas distribution network. Mira is investing in this asset as a partner to RWE.
According to Beckley, MEIF4 will primarily invest in core regulated infrastructure assets, which could include water, gas, electricity, distribution and transmission networks in Europe. The fund might also have a limited number of investments in renewable energy, and transportation assets, such as airports or roads, assets that together with regulated infrastructure assets are increasingly being sold off by vendors that in some cases need to delever.
The sale of OGE, for example, is part of a broader disposal programme, under which E.On plans to sell €15 billion-worth of assets by the end of 2013.
E.On has said it plans to use the proceeds from the disposals to reduce debt and reinvest in emerging markets in a move to reduce dependence on European countries. So far, E.On assets worth more than €9 billion have been sold.
On what he believes distinguished their bid approach from the other consortia, Beckley says: “We were very clear on the attractiveness and the investment merits of the opportunity upfront. We knew we understood the industry and the regulation, which to a large extent drives the returns, so we felt confident with the overall investment thesis. We were well aligned, disciplined and as a broader team shared a great clarity of purpose.”
