Chinese investors keen to back UK energy and infrastructure projects

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An increasing number of large-scale infrastructure and energy projects in the UK are drawing interest from Chinese investors. On the back of the improved economic sentiment, Chinese investors sense a real opportunity to promote China’s Go Global strategy. They are also keen to support the UK Government’s strategy of investing in energy and transport infrastructure.

With the UK Government keen to support ever increasing private sector and overseas investment in infrastructure, Clearwater’s China Desk is experiencing greater demand for these sorts of opportunities from Chinese investor groups.

The first major investment of this kind in the UK involved China Investment Corp (CIC) acquiring a near 9% stake in Kemble Water Ltd, the owner of Thames Water. CIC was originally set up in 2007 to invest over $3bn of Chinese foreign exchange reserves. The 2012 transaction saw CIC join the Abu Dhabi Investment Authority as a significant investor in the water utility.

Later in 2012, CIC acquired a 10% stake in Heathrow Airport Holdings Ltd. The transaction saw CIC pay £450m for the asset which was previously BAA Ltd. The deal followed a £900m acquisition of a 20% stake in Heathrow by Qatar Holding, the sovereign wealth fund, earlier that year.

A key feature of more recent Chinese investments in the UK is the promotion of the Go Global strategy. This initiative sees Chinese banks and investors provide financing for the capital investment into large infrastructure, with an additional agreement that there will be direct Chinese involvement in the project. This was the case with the £800m development project at Airport City Manchester, a landmark development at Manchester Airport comprising advanced manufacturing, hospitality, leisure facilities, logistics operations and offices. The project’s consortium includes the Industrial & Commercial Bank of China (ICBC) as the lead funding partner. ICBC, the largest commercial bank in the world, was introduced to the opportunity through Clearwater’s China Desk.

ICBC’s involvement in Airport City Project was predicated on there being involvement from a Chinese contractor in the project. As a result, Beijing Construction & Engineering Group Ltd was brought into the consortium to partner with Carillion plc.

Chinese investors continue to seek similar infrastructure investment opportunities, including in the energy industry. At the end of 2013, the French power group EDF SA announced that it would partner with China General Nuclear Corp and China National Nuclear Corp on a £16bn project to build two nuclear power reactors at Hinckley Point in Somerset. The consortium will also explore a similar arrangement for two more nuclear power reactors at Sizewell in Suffolk.

Other energy investments are also being sought by Chinese investors, particularly in the wind power sector. The opportunity to bring Chinese wind turbine manufacturers into these projects is an added incentive for Chinese funders. Of additional interest are other transportation assets including large-scale highway and railway investments. It is also likely that Chinese investors will look carefully at Birmingham Airport should this be an asset which comes onto the market in the near future.