OMERS buys stake in Texas T&D system

DALLAS, TEXAS - The Ontario Municipal Employees Retirement System (OMERS) is buying 10 per cent of the largest electricity distribution and transmission system in Texas for $627-million (US), its first major investment in this part of the power sector.

Government of Singapore Investment Corp. (GIC), a sovereign wealth fund, is also part of the investment group, which in total will purchase just under 20 per cent of Dallas-based Oncor Electric Delivery Co. LLC for $1.25-billion (US).

Oncor is owned by holding company Energy Future Holdings Corp. (EFH), also of Dallas, which changed its name from TXU Corp. when it was purchased by a private equity group last year for $32-billion.

As part of the acquisition, which closed last October, the new owners, including Kohlberg Kravis Roberts & Co., Texas Pacific Group and Goldman Sachs Group Inc., said they planned to sell a 20-per-cent minority stake in Oncor.

Because Oncor is a regulated entity, there was concern about the impact the debt involved in the private equity buyout would have on the company. The goal of selling a minority stake was to give Oncor greater financial separation from the rest of EFH, a company representative said.

EFH's other divisions include a retailing arm, and a generation business that encompasses mining, marketing and trading.

After the sale, Standard & Poor's Corp. raised its credit rating for Oncor by two notches, to triple-B plus from triple-B minus.

This independent vote of confidence will strengthen Oncor's ability to invest billions of dollars in infrastructure in Texas over the next several years, Oncor chief executive officer Bob Shapard said in a statement.

OMERS, one of Canada's largest pension plans, has more than $52-billion (Canadian) invested in companies and assets around the world. It is making the investment in Oncor through one of its investment arms, Borealis Infrastructure Management.

While this is its first big foray into electricity transmission and distribution, OMERS already has more than $2-billion invested in the power sector. Its largest investment in this area is a 31.6-per-cent interest in the lease of nuclear power facilities operated by Bruce Power. of Tiverton, Ont.

Many investors, including Canadian pension funds, have been buying power assets around the world for their long-term, stable cash flow, and high barrier to entry for competitors.

In addition to Oncor's strong fit with OMERS' investment objectives, the pension fund was also interested in striking another partnership with GIC, OMERS spokesman John Pierce said.

The acquisition of the minority stake in Oncor by OMERS and GIC is subject to U.S. regulatory approvals.