Macquarie looks to cut stake in UK’s biggest gas network Cadent

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Australian investment manager Macquarie has joined forces with another shareholder to try to sell a combined £1.3bn stake in Cadent, the UK’s biggest gas network, as it prepares for the transition to renewable energy.

Macquarie currently owns 26 per cent of the business and is in early stage talks to sell a near 5 per cent stake, according to two people close to the discussions. Cadent runs about half of the UK’s eight local gas distribution networks, providing gas to 11mn homes and businesses in North West and East England, the Midlands and north London.

US-based Federated Hermes is looking to sell a 4.6 per cent stake, the people said. It currently owns 13 per cent of Cadent.

The sale will be a key test of investor appetite for gas infrastructure as Britain tries to reduce its use of natural gas as part of its efforts to reach net zero carbon emissions by 2050. 

Gas pipeline owners hope the UK will encourage the use of hydrogen, which does not produce carbon dioxide emissions when it is burnt, as a replacement for natural gas for home heating.

But the UK’s advisory National Infrastructure Commission last year urged the government to back heat pumps, which run on electricity, instead saying hydrogen for heating was “simply not ready at scale”. 

Macquarie had been increasing its investment in UK gas infrastructure, buying into Cadent in 2017. Three years ago, it bought a majority 60 per cent stake in National Grid’s gas transmission and metering network in partnership with British Columbia Investment. Last year, it raised that stake to 80 per cent. 

The high-pressure pipelines in the transmission network carry gas from the North Sea and import terminals over long distances to large power stations and factories, as well as to regional distribution networks such as Cadent, which then pipe it to homes and businesses.

Cadent has already replaced 70 per cent of its steel pipes with the plastic pipes necessary for hydrogen distribution and is on track to complete this by 2032. It believes it can convert its network to hydrogen, despite the uncertainty over its future role in the UK energy mix. 

The government has said it will decide on the role of hydrogen in home heating in 2026, following trials in people’s homes. However, two potential trials were cancelled last year because of local opposition and low availability of hydrogen, leaving only one left to run, in Fife, Scotland. 

Colm Gibson, a managing director at consultancy Berkeley Research Group, said: “There are a number of promising hydrogen technologies out there, but any buyer will need to engage proactively in the decarbonisation debate to maximise the value of their stake.”

Macquarie said there was no change in strategy despite the sale. “We are a committed long-term shareholder in Cadent and are supporting significant investment across the network to maintain the safe, secure and reliable supply of gas,” the group said.

It added that it had increased average annual investment in Cadent to £830mn in the years 2018-2024 compared with £536mn between 2014 and 2017, while customer bills had fallen 15 per cent in real terms.

Federated Hermes said it remained a “committed and supportive long-term investor” in Cadent, adding “we believe that the company will continue to play an instrumental role in the UK’s energy transition”.

Macquarie invested in Cadent in a £5.4bn deal in March 2017 alongside other investors including Qatar and Chinese sovereign wealth funds.

The Australian group is the largest infrastructure investor in the UK but has attracted some controversy particularly over its involvement in English water companies. It previously owned South East Water and Thames Water and currently owns Southern Water, which is under fire for sewage pollution.