Barclays Capital will play a leading part in arranging debt for all three of the consortia that successfully bid for the gas distribution network assets of National Grid Transco, the UK operator of high voltage networks and gas transmission systems.
Syndication may not be launched for some months, and some bankers expect most of the borrowing to go through the market next year. Nevertheless, the transactions could bring more than £4bn of new money to the loan market.
The Gas and Electricity Markets Authority will decide whether the sales can proceed in November, while NGT does not expect licences to be transferred to the new network owners until March 2005.
Although one head of syndications in London described pricing on the loans as very fine, the prospect of that amount of debt being raised in the loan market through the long awaited £5.8bn asset sale has delighted bankers.
?It's extremely welcome news for a market that has been crying out for mergers and acquisitions activity,? said a banker at one of the houses providing financing.?
A consortium comprising UK utility Scottish and Southern Energy (50%) along with the Canadian pension funds Borealis Infrastructure and Ontario Teachers' Pension Plan (25% each) has won the bidding for the regional networks in both Scotland and the south of England.
Barclays, Citigroup, Dresdner Kleinwort Wasserstein, Royal Bank of Canada and Royal Bank of Scotland will provide a loan of over £2bn to support this acquisition.
The north of England network has been sold for £1.39bn to a consortium comprising Hong Kong-based Cheung Kong Infrastructure (69.8%) and the Li Ka Shing Foundation (15.2%), as well as the UK's United Utilities (15%). Barclays, JP Morgan and Royal Bank of Scotland have been mandated to arrange a loan of over £1bn for this consortium.
In a further twist, Hong Kong Electric Holdings has already said it is in talks with Cheung Kong Infrastructure to buy its stake in the network. Like Cheung Kong Infrastructure and the Li Ka Shing Foundation, Hong Kong Electric is controlled by Asia's richest businessman, Li Ka-shing.
A consortium led by the Macquarie Global Infrastructure Fund and including a number of institutional investors has agreed to buy the Welsh and west of England network for £1.2bn. Barclays, Dresdner and Royal Bank of Scotland are arranging a loan of more than £1bn to support the purchase.
EuroWeek has learned that the multi-tranche loan supporting Macquarie's acquisition will have a 364 day tenor before extending to five years. It is not yet clear whether the other facilities have the same structure.
Undrawn 364 day facilities carry a zero risk weighting, so some bankers suggest that the arranging banks would not be troubled by holding their entire commitments through the year end if the facilities could not be wholly syndicated.
The wait for regulatory approval means that the buyers' financial backers could be waiting for some time until they receive the bulk of their fees. ?The fees are stacked towards regulatory approval,? said a syndicate banker at a lender involved in one of the deals.
?You would expect staged fees on something like this,? said another. ?If they can't buy the assets, they won't want to pay full whack.?
But one banker at a lender that decided not to back a bidder was sceptical about the value of backing such acquisitions. ?When we looked at funding deals for various consortia, we were being asked to sit on a deal for six to nine months with no remuneration while it goes through the regulatory process,? he said.
?It wasn't attractive on a risk/return basis and there was no commitment from the sponsors to the take out business with us.?
Bankers expect the Macquarie acquisition to be refinanced through a securitisation programme in one or two years' time. It is not yet clear whether, how or when the other deals will be refinanced.
