Exclusive: CEZ plans to bid for Czech gas distribution network GasNet

Jul 29, 2023

Electricity transmission lines carry power from CEZ's Ledvice coal-fired power plant near the village of Ledvice, Czech Republic, February 9, 2016. REUTERS/David W Cerny/File Photo

PRAGUE, Aug 7 (Reuters) - Czech electricity producer CEZ (CEZP.PR) plans to bid for the country's gas distribution network GasNet if it goes on sale, CEZ's deputy chairman said, as it would complement CEZ's expansion into gas, a transitional fuel in the shift from coal to clean energy.

Pavel Cyrani told Reuters that CEZ would bid when a formal sale process is launched for GasNet, adding the unit would also be a good fit for CEZ's electricity distribution business.

"GasNet is an asset that interests us," Cyrani said in an interview. "When it is, if the process is formally started, we would certainly prepare a very high quality offer."

Market sources and Czech media have said the firm was being put up for sale, although Cyrani, who is also CEZ's strategy director, said the process has not been formally started.

GasNet, owned through Czech Gas Network Investments by a consortium led by Macquarie Asset Management and including British Columbia Investment Management Corporation and Allianz Capital, covers 80% of the country's gas distribution through a network of 65,000 km of gas pipelines.

GasNet referred questions to shareholders. Macquarie declined to comment and Allianz Capital said it did not comment on individual assets.

GasNet had revenue of 13.98 billion crowns ($635.60 million) last year and earnings before interest, tax, depreciation and amortisation of 9.18 billion crowns.

CEZ, 70% state-owned and the biggest Prague-listed company with a market capitalisation of $23.2 billion, runs the country's main gas-powered power plant, is the second largest gas supplier and plans conversion of heating plants to gas.

"Not eternally, but... the second half of this decade and the next decade is the period when we as a country will need gas to produce heat and as peak resource to complement renewable resources," Cyrani said.

In the longer run, the gradually upgraded network will also be ready for hydrogen, he said.

The bid won backing from the country's industry ministry who said it could contribute to energy security.

"Having gas distribution in the hands of a strong local player would clearly help us in this effort," a spokesman said.

Cyrani would not comment on a potential valuation of the firm, which some analysts have put at high single multiples of EBITDA.

GasNet's business is highly regulated through distribution fees.

Last year it saw a drop in volumes due to warm weather, outages at a large customer and customers' savings following price jumps and a halt in Russian supplies after Russia's invasion of Ukraine.

Cyrani said this was expected to be partially offset in the future through the higher role of gas as fuel.

GasNet had net debt last year of 5.78 times EBITDA, according to a company presentation, with crown and euro-denominated bonds outstanding. It also had 14 billion crowns in subordinated shareholder loans due in 2044.

Cyrani said the debt load was no issue for CEZ.

"The company will be valued as enterprise value, debt will be subtracted from what is to be paid. As for debt load, CEZ is so large and so little leveraged that it would not mean any worry for us," he said.

($1 = 21.9950 Czech crowns)

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