Centrica realises value from its Canadian water heater investment

Centrica plc’s wholly owned subsidiary, Enbridge Services Inc, announced today that it has filed a final prospectus in Canada for the initial public offering of units of The Consumers’ Waterheater Income Fund (the “Fund”) (TSX: CWI.UN).  Upon closing, Enbridge Services Inc will receive approximately C$709 million (£289m) in cash proceeds.

The offering of 25 million units at C$10 per unit is scheduled to close on 17 December, 2002, and is expected to raise gross proceeds of C$250m (£102m).  The Fund has also entered into an agreement for the placement of a C$500m (£204m) Floating Rate Note (“FRN”) at the closing of the Fund offering.

Together, these arrangements imply a Fund enterprise value of approximately C$1 billion (£407m).  The proceeds will be used by the Fund to acquire the portfolio of water heater assets currently owned by Enbridge Services Inc.

Enbridge Services Inc will also have an approximate 49.5 per cent equity and voting interest in the Fund and will hold loan notes of the Fund of approximately C$32m.

The Fund and Enbridge Services Inc have entered into a long-term arrangement in relation to the future operation of the water heater rental business.  The Fund will own the assets and be entitled to receive 65 per cent of rental payments arising from the leasing of these assets to Enbridge Services Inc customers. Enbridge Services Inc will continue to service the assets and receive 35 per cent of the total rental payments and, due to its equity interest in the Fund, a proportional share, after debt service, of Fund distributions.

The transfer of the water heater assets is to be effected by the sale of a subsidiary of Enbridge Services Inc, Direct Water Heater Rentals Inc ("Rentco").  Based on the unaudited financials for the five months from 7 May 2002, the date of purchase of Enbridge Services Inc by Centrica, to 30 September 2002, Rentco's Earnings before Tax were C$0.8m (£0.3m) on Turnover of C$53m (£22m).  The net assets of Rentco that will be transferred had a book value (unaudited) of C$441m (£180m) as at 30 September 2002.  The proceeds from the transaction will be used for general corporate purposes.

Centrica acquired the water heater assets when it purchased Enbridge Services Inc in May 2002.  At the time Centrica said that it would explore alternatives for refinancing these assets in order to significantly reduce its investment whilst retaining the customer relationships and installation, repair and servicing businesses.

Sir Roy Gardner, Chief Executive of Centrica said:  “Today’s announcement is consistent with the statements we made when acquiring the water heater assets as part of our purchase of Enbridge Services Inc in May 2002.

“It also means that Centrica has realised a significant proportion of its original C$1 billion investment in Enbridge Services Inc and demonstrates that we do not need to own those assets to maintain our direct relationship with customers.”