The owners of Madrilena Red de Gas (MRG) have launched a strategic review that could lead to a lucrative deal for the Madrid-based gas grid provider, three sources with knowledge of the matter told Reuters.
RBC Capital Markets is handling the review that could see the company – which operates a 6,196-kilometre network in and around Spain’s capital city – being sold or merged with another industry player, the sources said, speaking on condition of anonymity as the matter is confidential.
RBC is working on behalf of Dutch pension fund PGGM, Lancashire County Pension Fund, EDF Invest and Gingko Tree which jointly control MRG and are weighing options to realise their investment, the sources said.
A sale could value MRG at about 1.5 billion euros ($1.67 billion) but the options being explored include a merger or a debt refinancing deal, the sources said, cautioning no final decision had been made.
MRG, which was launched in 2010 and serves about 912,000 customers, has gross debt of 950 million euros, according to the latest figures made public by the company.
RBC, PGGM and EDF Invest declined to comment. Lancashire and Ginkgo Tree did not respond to requests for comment.
Distribution networks for power and gas typically attract financial investors because they generate juicy regulated returns in most markets.
Deal activity has gained momentum over the past 12 months with JPMorgan Asset Management increasing its stake in Spanish regional distributor Nortegas in December, while a consortium of pension funds bought SSE’s stake in Scotia Gas Networks in August.
PGGM, EDF and Gingko Tree bought MRG from Morgan Stanley Infrastructure in 2015 and went on to sell a 12.5% stake to Lancashire County Pension Fund in 2016.
While Spain slashed the returns gas companies could make on their regulated grid assets in 2020, the sources said MRG would still command a market value of around 1.5 billion euros.
Its valuation would represent a multiple of 10 to 12 times its core earnings of 139.7 million euros in 2020, one of the sources said.
As part of the ongoing review, MRG is also considering investing more in developing services linked to other gases such as hydrogen in a bid to diversify from natural gas and possibly reduce carbon dioxide emissions, one of the sources said.
It was not immediately clear whether any aspect of the review would be affected by market volatility stemming from Russia’s invasion of Ukraine.
Source: Reuters.com