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EDF sets UK sale timetable

Source: Reuters - Mon 9th Nov 2009

French utility EDF has set an indicative timetable in its sale of Britain's biggest electricity distribution network as industry and financial parties begin to form consortiums, sources said.

EDF has sent out what bankers call a 'teaser' to potential bidders previewing the sale of its three distributor network operators (DNOs), whose regulated asset value (RAV) now stands at close to 4 billion pounds, several sources familiar with the process said.

The company has privately communicated a draft timeline that calls for the sale to be launched in early December, after regulator Ofgem determines the allowed returns of the DNOs, three of the sources said.

EDF then plans to seek first-round bids around the middle of January with binding bids due by the end of the first quarter of 2010, two of the sources said.

EDF declined to comment. Its shares were up 1.22 percent at 37.45 euros at 8:44 a.m. British time.

On offer are three power networks that serve 20 million people in London, the east and southeast of England, areas that account for 40 percent of British GDP. EDF Energy, which runs the DNOs, made a pre-tax profit of 189 million pounds in 2008.

EDF has called the process an evaluation of options and a source close to the company said it was not certain that a sale would ultimately take place.


The regulated cash flows of the assets are attracting heavy interest from infrastructure funds and institutional investors who are keen to team up with companies that have experience in running DNOs, sources close to the interested parties said.

Canada Pension Plan (CPP) is looking for a consortium to join while Canadian peer Borealis has already teamed up with Scottish & Southern Energy (SSE), two people familiar with the matter said.

Infrastructure funds from Macquarie, 3i and IFM Infrastructure have also expressed interest, sources close to the funds said. National Grid is also preparing a bid, two sources close to the company said.

National Grid, SSE, Macquarie and 3i declined to comment while CPP, Borealis and IFM were not available for comment.

More or new combinations could emerge ahead of the sale's launch as other major players, such as infrastructure funds from RREEF, Alinda, GIP and Blackstone, decide on whether they will participate, a number of industry sources said.

A challenge for any buyer will be bringing EDF's DNOs to the efficiency levels achieved by other grids and sourcing the financing for what has to be a huge equity check, people familiar with the assets said.

EDF has undertaken what bankers described as a pre-leveraging of the UK operating companies it plans to sell. It is doing this via a 950 million pound bond issue in three tranches with 7, 22 and 27-year maturities.

This is cheaper than acquisition or staple financing in the current market conditions, bankers said.

Acquisition finance for BAA's sale of Gatwick airport, for example, starts at 350 basis points (bps) over Libor with the margin rising over time, according to Reuters Loan Pricing Corp data. 

EDF's UK bond priced on Friday at between 165 bps and 175 bps over midswaps depending on the tranche.

The bond deal's covenants provide investors with some protection if future owners were to hike the companies' debt.

Investors will get an additional 25 basis points if the credit rating on the operating companies is cut to BBB+ by Fitch and Standard & Poor's and Baa3 by Moody's Investors Service. They get a further 25 basis points if the ratings fall further.

EDF's financial advisors on the sale are Barclays Capital and Deutsche Bank, with additional support provided by BNP Paribas. Herbert Smith is its legal advisor, sources said.

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