FT Article Laments CKI’s Lapsed UKPN Sale, No Impact to Our FVE

A Financial Times article has highlighted CKI Holdings' lapsed deal to sell its stake in British electricity distribution network UK Power Networks, or UKPN, but we have a neutral view on the deal and our fair value estimate on CKI is unchanged at HKD 62. According to the article, the offer from a KKR-led consortium priced UKPN at GBP 15 billion, which would have presented a nice gain to CKI, who purchased its stake at an enterprise value of GBP 5.8 billion. However, we understand CKI is not keen to sell, given the recent inflation adjustments in the U.K. that lead to a revision in UKPN's regulated asset value, or RAV, to at least GBP 7.9 billion as of May, from GBP 6.2 billion that we use in our valuation estimate. The reason for our neutral view is that we believe it would be difficult for CKI to find another regulated utility asset of equivalent size, quality and potential capital expansion outlook for the next 10 years. In short, we think the bird in hand currently is as good as the two in the bush and CKI management believes it's worth more than two.