News Alert: Crystallizing the value of UK water businesses
- Cheung Kong Asset Holdings, Cheung Kong Infrastructure and Cheung Kong Hutchison Holdings have collectively agreed to sell 25% of their stake in Northumbrian Water Group to KKR
- Upon deal completion, CKAH’s economic interest will dilute to 27% from 36%.
- Expect disposal gains of c.HK$0.5bn
CK Asset Holdings (CKAH), jointly with CK Infrastructure (CKI) and CK Hutchison (CKHH), have entered into an agreement to dispose an aggregate of 25% of their stake in UK water and waste-water services businesses held under Northumbrian Water Group (NWG) and Northumbrian Services Limited (NSL) to KKR Investment for GBP867m (or HK$8,073m). Subject to the approval from the UK authorities, the deal is expected to complete by Sep-22 at the earliest.
NWG Group mainly operates water and waste-water services, including the supply of water and collection, treatment and disposal of sewerage and sewage sludge, in England and any ancillary services to such water and waste-water service. Meanwhile, NSL Group is a waste-water service provider in Scotland which handles the collection, treatment and disposal of sewage and sewage sludge.
KKR is a leading global investment firm. KKR established its global infrastructure in 2008, and has since become an active infrastructure investor, with a team of about 75 investment professionals. Currently, the firm oversees c.US$40bn in infrastructure assets globally and has made about 65 global infrastructure investments .
Upon deal completion, economic interest in NWG and NSL held by CKAH, CKI, Power Assets and CKHH will fall to 27%, 39%, 6% and 3% from 36%, 52%, 8% and 4% respectively.
This stake disposal should generate proceeds of HK$2.9bn to CKAH with estimated gain of c.HK$0.5bn. Since late 2021, CKAH has generated proceeds of c.HK$48bn from asset disposals. With its impeccable balance sheet strength, CKAH resumed the share buyback in May-22 and has since repurchased 6.56m shares for HK$341m. This has improved the company’s capital structure, as well as supported the share price. We believe the company will continue to buy back shares after it releases its results in August.
My current rating is BUY with HK$64.3 TP