EnBW-controlled German energy company VNG Group has mandated Barclays to explore selling a minority stake in its gas transportation subsidiary ONTRAS Gastransport, three sources familiar with the matter said.
The review of VNG’s options is at an early stage, and if a sale process goes ahead it will likely only launch after the summer, two of the sources said. It is unclear what stake size might come to market, but it would likely be between 25.1% – 49%, the first source said.
A sale would not result in EnBW ceding control, the first source said, or affect its consolidation within the group.
Ontras is often touted as an acquisition target following the 2016 sale of Thyssengas, but EnBW would be unlikely to want to part with Ontras’ stable cash flow, Debtwire’s sister publication Mergermarket reported.
Thyssengas, a 4,200km gas network, was sold by Macquarie Infrastructure and Real Assets to a consortium comprising DIF and EDF in June 2016 for a reported EUR 700m.
EnBW has ambitious growth plans for its renewables segment and is unlikely to commit its own capital for VNG’s capital intensive growth projects, and a stake sale of Ontras would allow VNG to fund its projects without recourse to EnBW, the first source said.
Ontras is increasingly engaging in its own projects, as well as cooperating on the feed-in of bio-methane, the generation and use of synthetic gas on the basis of wind energy, gas as a propellant, and the energy efficiency of its own infrastructure, according to VNG’s 2016 annual report.
In October last year, Ontras acquired a 16.5% stake in the EUGAL transmission pipeline.
As only a minority of Ontras will be on offer, it will be difficult for strategic bidders to engage in the process, the first source said, leaving only financial investors. This would primarily comprise investors with a low cost of capital, such institutional investors and German insurance companies, and infra funds comfortable with a minority stake, such as DIF, for example, may show an interest. But classic infra funds might shy away, he added.
VNG has also launched a sale of, or a stake in, its upstream oil and gas business VNG Norge, as reported.
VNG will focus first on the upstream transaction, and will then concentrate on Ontras, the second source briefed said.
Ontras, based in Leipzig, operates approximately 7,000km of high pressure gas pipeline services in the GASPOOL market area within central Europe, as well as network related services for transport customers, dealers, regional network operators, and connectees in its service business, INFRACOM.
VNG Group and parent VNG AG do not report financials of the separate business areas.
VNG Group reported EUR 7.2bn in revenue, EUR 204m in EBITDA and EUR 40m in net profit in 2016. EnBW has a EUR 7.52bn market capitalisation.
The economic development of Ontras is heavily dependent on the regulatory framework and resulting permissible revenue caps. By restrictively regulating the equity interest rates, beginning in 2018, revenue caps will, however, decline, VNG said in its FY16 annual report.
The German regulator Bundesnetzagentur (BNA) is cutting allowed returns for this regulatory period from 9.05% to 6.91%, which will result in lower returns for investors, the first source said.
The allowed revenues of ONTRAS this year are EUR 225.4m, it stated.
In October 2015, EnBW and EWE agreed to restructure their shareholdings, resulting in EnBW buying 74.2% of VNG from EWE. The balance of interest in VNG is held by eight utilities and municipal companies that make up VNG Verbundnetz Gas Verwaltungs- und Beteiligungsgesellschaft with 21.58% and SWE Stadtwerke Erfurt with 4.21%.
VNG declined to comment. EnBW and Barclays did not respond to requests for comment.
by Patrick Harris and Philippa Wilkinson