NPS joins in billion-dollar LNG midstream deals of Blackstone, KKR

The National Pension Service (NPS) made an investment of the trillion-won ($860 million) level in two LNG midstream assets in North America last month as a key investor of infrastructure funds run by KKR and Blackstone, respectively.

One of the deals was KKR’s equity investment in the $6.6 billion Coastal GasLink Pipeline project under construction in British Columbia, Canada.

KKR said in December that it made the investment primarily through a separately managed infrastructure account in partnership with the NPS.

Canada-based Alberta Investment Management Corporation (AIMCo) also teamed up with KKR to buy a combined 65% of the 670 km pipeline project from TC Energy Corporation.

Other details of the deal structure have yet to be disclosed.

Simultaneously, NPS took part in Blackstone Infrastructure Partner’s (BIP) $2.2 billion buyout of the remaining stake in Tallgrass Energy LP, a US pipeline operator.

Singapore’s GIC, USS (the Universities Superannuation Scheme of the UK) and Spanish energy company Enagas participated in the transaction as well, according to Tallgrass’ announcement last month.

The amount of NPS’ investment in both deals and expected returns were not specified. The sources just said it was the trillion-won level.

In general, US midstream facilities are expected to return 7-10% per annum given the limited new supply since the mid-2010s when oil price plunge halted investment in new capacity.

An alternative investment source in Seoul said that midstream companies’ earnings are stable over the medium to long-term period because they stem from long-term contracts with big companies.

Rising LNG demand in line with pro-environment energy policy adds to the bright outlook for midstream companies, he noted.

NPS’ investment in the two midstream assets may signal that the $610 billion pension scheme is raising exposure to infrastructure which looks undervalued relative to real estate.

“With real estate prices soaring to the level that looks burdensome around the world, infrastructure is becoming more attractive in relative terms,” a domestic pension fund source told the Korean Investors.

“For NPS which needs to manage a growing size of assets while paying close attention to risk management, the large-scale investment and greater stability (of infrastructure) makes the investment appealing.”

NPS’ assets are estimated to rise by nearly 10% to 780 trillion won ($669 billion) by the end of this year, versus 712 trillion won at the end of October 2019.

It is aiming to lift the proportion of alternatives to 15% by 2023 from 11.4% at the end of October which missed its 2019 target of 12.7%.

By Jung-hwan Hwang

jung@hankyung.com

(Photo: Getty Images Bank)