Owners of Madrid gas grid aim to launch sale in September – sources

By Isla Binnie and Andres Gonzalez

LONDON (Reuters) – The owners of a major Spanish natural gas network are preparing to launch a sale process in September with a targeted valuation of up to 2 billion euros ($2.1 billion), seeking a buyer who will advance its efforts to transition to low-carbon fuel, three sources familiar with the matter told Reuters.

Madrilena Red de Gas’ (MRG) big shareholders include Dutch pension fund PGGM and Chinese sovereign fund Gingko Tree Investment Ltd with stakes of 33.75% each as well as the EDF Invest arm of French electric utility EDF with 20% and UK’s Lancashire County Pension Fund with 12.5%.

The shareholders hired RBC Capital Markets to conduct a strategic review of the company, which operates 6,196 km of infrastructure in Madrid, Reuters reported in March.

The bank now plans to launch a sale process after the summer. EDF Invest, PGGM, the Lancashire fund, Gingko Tree and RBC did not immediately reply to request for comment.

Some of the shareholders are less committed to a sale than others, the sources said, but their pact includes a drag-along clause that may force them to sell if a majority reaches a deal.

MRG serves 915,200 homes in 61 municipalities, according to its latest published figures.

The sellers aim to achieve a valuation of 1 billion euros for the equity of the company, which currently has 950 million euros of debt on its balance sheet, the sources said.

Domestic competitors Nortegas and Redexis, the second- and fourth-biggest gas distribution companies in Spain, will consider offers, according to two of the sources. Redexis and Nortegas declined to comment.

Green hydrogen

Gas grids face questions around their role in the pursuit of “net-zero” economies that emit no more carbon than can be absorbed by natural sinks and other technologies.

MRG Chairman Pedro Mielgo said this year the company was working to adapt its networks to carry hydrogen, a fuel source that, when produced using renewable electricity, emits no planet-warming carbon.

The European Union has seized on so-called green hydrogen as a way to cut greenhouse gas emissions, especially from heavy industry, but some question its efficiency as it requires vast amounts of clean power to produce and future cost reductions are uncertain.

MRG generates cash – 126 million euros of free cash flow in 2021 – which could set it up well for the kind of investment required to make the green hydrogen shift.

But it operates under a regulatory regime that changes every five years, so the next review – scheduled for 2026 – will be key to determining future returns.

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(Reporting by Isla Binnie and Andres Gonzalez in London; Editing by Cynthia Osterman)