CANADA - Two Ontario pension funds, through their part stake in gas company Scotia Gas Networks (SGN), have acquired the Scotland and South of England gas distribution networks from National Grid Transco for CAN$7.25bn.
Borealis Infrastructure Management Inc, a Ontario Municipal Employees Retirement System (OMERS) company, and the Ontario Teachers’ Pension Plan (OTPP) each invested about CAN$555m for a 50% combined stake in SGN, a holding company for the businesses being acquired. Scottish and Southern Energy, one of the UK’s largest energy companies, owns the remaining 50%.
Both pension funds are looking to expand their infrastructure portfolios.
“We believe this investment will help us pay pensions to the teachers of Ontario by providing stable, long-term returns,” said Jim Leech (pictured), senior vice president of the CAN$85bn OTPP. “The UK gas sector has a sophisticated and transparent regulatory framework that provides a strong environment for private investment. We are looking for similar opportunities to build our infrastructure portfolio both at home and abroad.”
Paul Haggis, president and CEO of the CAN$36bn OMERS, said the acquisition was part of the fund’s long term investment strategy.
“OMERS continues to realign its asset mix, shifting a portion of capital from publicly traded investments to infrastructure and private equity assets. In the future we will look to invest about 15% of the fund in infrastructure assets, as compared to the current 3.5%.”
He added: “Infrastructure assets such as this are a great fit for pension plans - they provide long-term, stable returns to pay pensions. We are excited about the opportunity to pursue similar opportunities in Canada and look forward to seeing the results of recent government efforts to develop and encourage these kinds of investments.”
OTPP has global infrastructure and timberland assets of more than CAN$3bn and is actively seeking to expand its portfolio of electrical transmission systems, oil export pipelines, toll highways, power generation and airports.
Of the CAN$7.25bn purchase price, CAN$4.78bn is being funded by non-recourse borrowings and CAN$2.48bn by equity and shareholder loans. The two networks - now named Scotland Gas Networks and Southern Gas Networks - deliver gas to about 5.6m people.
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