July 31, 2018 / 12:56 PM / in 15 days

China Southern Power Grid buys 25 percent in European utility Encevo

PARIS (Reuters) - State-owned China Southern Power Grid has agreed to buy a minority stake in European utility Encevo, as Chinese firms continue to acquire assets in Europe even as governments in the region try to limit their influence.

Private equity firm Ardian said on Tuesday it had agreed to sell its 25.48 percent stake in Encevo to China Southern Power Grid.

Encevo has two main subsidiaries - Creos and Enovos Luxembourg. Creos manages electricity and gas grids while Enovos Luxembourg is responsible for the sale of energy to a diversified portfolio of clients in Luxembourg and Germany.

The sale of the stake in Encevo comes after Germany last week stepped up efforts to prevent companies in critical industries from falling into Chinese hands.

German state bank KfW agreed last week to take a 20 percent stake in high-voltage energy network operator 50Hertz, fending off an offer from China’s State Grid.

Britain has also taken steps to tighten rules regarding the takeover of UK assets by foreign interests, mirroring efforts in the United States, France and Australia, where there are concerns that China and other rivals are gaining access to key technologies.

Ardian said it held a public process to dispose of its stake in Encevo and all stakeholders were informed — including governments in Luxembourg, which holds a stake in Encevo, and in Germany — and nobody opposed the sale.

The private equity fund received firm bids from five companies, three utilities and two funds and the offer made by China Southern Grid was the most attractive.

Companies such as Encevo are attractive as they generate stable returns since most of their revenue and profit margins are regulated and guaranteed by local authorities.

The transaction valued the stake at around 400 million euros ($468 million), according to two sources close to the deal.

Ardian, which was then called AXA Private Equity, had paid 330 million euros for a 23.48 percent stake in the grid operator in 2012 from ArcelorMittal (MT.AS). It later bought an additional 2 percent stake in Encevo from E.ON.

Reporting by Sudip Kar-Gupta, Inti Landauro and Arno Schuetze; Editing by Louise Heavens/David Evans

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