REG - SSE Plc - SALE OF 25% STAKE IN TRANSMISSION BUSINESS

SSEAnnouncement

25/11/2022 07:00

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RNS Number : 5677H  SSE PLC  25 November 2022

SSE plc

SSE AGREES SALE OF 25% STAKE IN TRANSMISSION BUSINESS FOR £1.465BN TO UNLOCK
FURTHER GROWTH

 

SSE plc ("SSE") has reached agreement to sell a 25% minority stake in its
electricity transmission network business, SSEN Transmission - which operates
under its licenced entity, Scottish Hydro Electric Transmission plc - to
Ontario Teachers' Pension Plan Board (Ontario Teachers') in a transaction that
will help unlock significant growth in both the Transmission business and
across the wider SSE Group.

The transaction follows SSE's announcement on 17 November 2021 of its
intention to extend the partnering approach that has been successful in SSE
Renewables to its core electricity distribution and transmission network
assets through the sale of minority stakes in both businesses as part of SSE's
fully funded Net Zero Acceleration Programme (NZAP). The stake sale process
for SSE's electricity distribution business is expected to commence in early
2023.

The transaction is based on an effective economic date of 31 March 2022, and
total cash proceeds of £1,465m for the 25% stake are expected at completion.
The transaction is expected to complete shortly.

As at 31 March 2022, SSEN Transmission had a RAV of £4,155m (with RAV at 31
March 2023 forecast to be almost £5bn) and net debt and debt-like items of
£2,488m, including £780m of SSE shareholder loans. These shareholder loans
to SSEN Transmission will remain in place and are expected to be replaced with
external debt as they mature.

This successful transaction reflects both the current value and significant
growth potential of SSEN Transmission as one of Europe's fastest growing
transmission networks.  SSE continues to believe SSEN Transmission has a
central role to play in meeting net zero and bolstering the UK's energy
security by unlocking the vast renewable resources in the north of Scotland
and transporting that homegrown low carbon power to demand centres further
south.

SSEN Transmission's RIIO-T2 baseline investment case of circa £2.6bn (the
'Certain View'), together with further investments expected to be unlocked
through Ofgem's Uncertainty Mechanisms, is forecast to deliver gross RAV of
£6.5-£7.0bn by 2026.  Longer term, subject to projects progressing through
planning and regulation, SSE expects SSEN Transmission's gross RAV to exceed
£12bn by 2031.  This growth is expected to be supported by the publication
of Ofgem's Accelerated Strategic Transmission Investment framework later this
year and the Electricity System Operator's Holistic Network Design Follow Up
Exercise which is expected to be published in spring next year.

The proceeds released through this stake sale will support the significant
growth SSE continues to see in SSEN Transmission and further growth
opportunities across SSE's other core businesses, while ensuring an attractive
balance of capital allocation across the Group.

SSE's NZAP creates the platform that could see the Group deliver around 20% of
the offshore wind generation and electricity networks needed in the UK by
2030, alongside investments in flexible generation technology and the export
of SSE's renewable energy capabilities internationally. In Great Britain
alone, SSE's investment could exceed £24bn this decade, directly alleviating
the UK's energy crisis.

The sale of a minority stake will allow SSE as the majority shareholder to
retain control in relation to operating and managing the business, with
Ontario Teachers' to be proportionately represented on SSEN Transmission's
Board of Directors.  SSE's Finance Director Gregor Alexander will be Chair of
this new Board and Rob McDonald will continue in his role as Managing Director
for SSEN Transmission, along with other key members of SSEN Transmission's
Leadership Team.

To help cover the future long term funding requirements and the working
capital of SSEN Transmission, and as referenced in SSE's 2022/23 Interim
Results, a new £750m revolving credit facility has been put in place.  This
facility will support SSEN Transmission's ongoing capital expenditure
investment programme that is required to deliver its ambitious growth plans.

Gregor Alexander, Finance Director of SSE, said:

"We are delighted to agree a transaction that will help unlock the full
potential of our growing electricity transmission business, which remains core
to our strategic direction as a clean energy champion specialising in
electricity infrastructure.

"As we set out in our Net Zero Acceleration Programme last year, due to the
scale of potential growth and the associated investment required across SSE's
businesses, including in electricity networks, bringing in minority partners
will balance capital allocation and support further growth, creating greater
long-term value for all our stakeholders.

"In Ontario Teachers' we have a strong long-term partner who we have worked
with successfully over the past 18 years and, whilst we will retain
operational control, they will be critical to SSEN Transmission's ongoing
future success."

Rob McDonald, Managing Director of SSEN Transmission, said:

"With the north of Scotland home to the UK's greatest resources of renewable
electricity we have a critical role to play in helping deliver the UK and
Scottish Governments net zero commitments.  Our investments will also be key
to securing the UK's future energy independence through enabling the
deployment of homegrown, affordable, low carbon power.

"With significant growth forecast in transmission, bringing in Ontario
Teachers' as a minority stake partner will help fund our ambitious investment
plans as we continue to deliver a network for net zero emissions across the
north of Scotland."

Charles Thomazi, Head of EMEA Infrastructure & Natural Resources at
Ontario Teachers', said:

"SSEN Transmission is one of Europe's fastest growing transmission networks.
Its network stretches across some of the most challenging terrain in Scotland
- from the North Sea and across the Highlands - to deliver safe, reliable,
renewable energy to demand centres across the UK.

"We're delighted to partner again with SSE and are committed to supporting the
growth of its network and the vital role it plays in the UK's green energy
revolution."

Further Transaction Details

In the 12 months to 31 March 2022, SSEN Transmission made an adjusted
operating profit of £380.9m, with reported pre-tax profit of £329.8m. At 30
September 2022, SSEN Transmission had gross assets of £4,716.1m and net
assets of £2,242.8m.

The Transaction constitutes a class 2 transaction for the purposes of the UK
Financial Conduct Authority's Listing Rules and, as such, does not require SSE
shareholders' approval.

Morgan Stanley and Rothschild and Co acted as SSE's joint financial advisors
and Freshfields Bruckhaus Deringer LLP acted as legal advisers to SSE on this
transaction.

Ontario Teachers' was advised by Evercore as sole financial adviser and by
Linklaters LLP as legal adviser.

SSE contact:

Investors: ir@sse.com (mailto:ir@sse.com) | Michael Livingston, Sally
Fairbairn | +44 (0)345 0760 530

Media:  media@sse.com (mailto:media@sse.com)  | Glenn Barber, Greg Clarke,
Raymond Buchanan | +44 (0)345 0760 530

MHP, Oliver Hughes |oliver.hughes@mhpgroup.com |+ 44 (0)7885 224 532

MHP, Simon Hockridge |simon.hockridge@mhpgroup.com |+ 44 (0)7709 496 125

Ontario Teachers' contact:

Media: Oliver Mann, Kekst CNC | +44 203 7551 607 | otpp@kekstcnc.com
(mailto:otpp@kekstcnc.com)

ENDS

 

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