UK's SSE to shed stake in gas distributor for $1.7bn

UK energy group SSE announced on August 2 the sale of its entire 33.3% stake in gas distribution operator Scotia Gas Networks (SGN) for £1.225bn ($1.7bn) in cash, framing the divestment as part of its shift towards lower-carbon electricity.

The buyer is a consortium comprising Ontario Teachers' Pension Plan Board, already a SGN shareholder, and Brookfield Super-Core Infrastructure Partners. The deal is on track for closure in the current financial year pending regulatory approvals, SSE said, and will have an effective date of March 31, 2021.

SGN provides gas to 5.9mn homes and businesses in the southeast of England and Scotland. SSE bought a 50% stake in the business in 2005 for £505mn, but went on to divest a 16.7% interest to the Abu Dhabi Investment Authority (ADIA) in 2016 for £621mn. The latest sale draws a line under a £2bn disposal programme that SSE launched in June 2020, which ended up generating over £2.7bn. 

"SGN has been a hugely successful investment for SSE during the past 16 years. It is a strong business delivering consistently for customers and will have a key role to play in the future development of the hydrogen economy," SSE's financial director Gregor Alexander commented. "However, it has become purely a financial investment for SSE as we have sharpened our focus on our low-carbon electricity core, and it is therefore the right time for SGN to continue to thrive under new ownership."

SSE's upcoming low-carbon investments include renewables, a planned 1.8-GW hydrogen-fired power plant in the UK's Humber region, a 900-MW gas power project at Peterhead in Scotland equipped with carbon-capture equipment, and a proposed hydrogen storage facility in the country. The company will use proceeds from the divestment at SGN to reduce its net debt and support capital investments, it said. It is however retaining its gas storage business as being critical to the energy transition.

ADIA also divested its holding in SGN to the Canadian consortium, SSE confirmed, without revealing the price tag. Morgan Stanley and Credit Suisse acted as financial advisors and CMS Cameron McKenna Nabarro Olswang as legal advisor to SSE, while Nomura served as financial advisor and Freshfields Bruckhaus Deringer as legal advisor for ADIA. Evercore was financial advisor to Ontario Teachers’ and Linklaters was legal advisor to the Canadian consortium.