SCOTTISH Hydroelectric owner SSE is set to raise more than £600 million from the sale of a stake in a gas networks business which it signalled could pave the way for big payouts to shareholders.
The Perth-based power giant has agreed to sell a 16.7 per cent interest in Scotia Gas Networks to an Abu Dhabi sovereign wealth fund for £621 million cash in a transaction that it expects to complete this month.
The sale will allow SSE to cash in on the increase in the value of the pipelines business in recent years.
SSE acquired a 50 per cent stake in the gas networks business for £505m in 2005.
Overseas investors have been showing strong interest in UK infrastructure assets from which they can generate steady returns.
The fall in the value of the pound following the Brexit vote has made UK assets more affordable for foreign buyers.
SSE will retain a one third stake in SGN, which channels gas to six million homes in Scotland and southern England.
The sale will free up cash, which SSE said it could use to reward shareholders or to invest in its operations.
The company noted that the sale came five months after it had launched a review of the SGN holding.
It added: “When it announced the review, SSE said that should a sale be completed it would expect to use the proceeds to return value to its shareholders or to invest to create value for shareholders, should there be the right opportunity. SSE will set out its intentions with regard to the proceeds in its interim results statement on 9 November 2016.”
The company did not elaborate on how it might return value to shareholders.
It could do that by paying a special dividend or buying back shares.
Analysts at Macquarie investment banks suggested the sale of a 16 per cent stake in SGN could be followed by a special distribution worth around 50p per per share.
SSE has attached great importance to growing dividend payments to investors.
In a trading update issued last month the company said it remains on course to deliver an increase in the full-year dividend that will be at least equal to RPI (retail price) inflation.
It is targeting dividend growth that at least keeps pace with RPI in subsequent years.
The company said in the update that profits from its retail arm would be impacted by a fall in customer numbers, without giving details.
It also noted profits at the power generation arm are expected to be impacted by the significantly lower output of electricity from renewable sources in the first six months against the same period last time.
Yesterday, chief executive Alistair Phillips-Davies said: ““Over the last decade, SGN has become a leading gas distribution business for the benefit of customers and investors alike. The sale of a 16.7 per cent stake confirms SSE’s ability to deliver value for shareholders through focused, timely disposals while at the same time retaining a diverse range of regulated and unregulated businesses in order to support long term dividend growth.”
The sale reflects strong overseas interest in UK infrastructure businesses, which operate in markets with high barriers to entry.
SSE noted it has received £750m from the gas networks business through dividends and other distributions since 2005.
In September the GMB trades union called on the UK Government to stop National Grid selling its £11bn gas network business to overseas bidders, amid reports that Asian investors were eyeing the business.
The regulator Ofgem last month warned bidders not to overpay for gas network interests.
It said they would not be compensate for any premium they paid over the regulatory value of such assets.
The other investors in Edinburgh-based SGN include Borealis, the infrastructure investor which is backed by a Canadian pension fund. The Ontario Teachers Pension plan also has a stake.
SSE has agreed to sell the 16.7 per cent interest in SGN to wholly owned subsidiaries of the Abu Dhabi Investment Authority, effective from 1 April.
In March SSE sold a 49.9 per cent stake in the giant Clyde Wind Farm development in South Lanarkshire to the London-based Greencoat UK Wind investment business and pension funds for £355m.
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