Citi eyes special dividend from National Grid after gas sale rumours

Citi suggested that if National Grid sells its gas distribution business, as claimed in the weekend newspapers, it would use the cash for an acquisition or to pay a special dividend.

National Grid directors are weighing up whether to pursue an outright sale of the remaining UK gas distribution assets, according to the Sunday Times, or go for a piecemeal deal.

The disposal talks remain at an early stage and the company has yet to appoint an adviser.

The Sunday Times report said the company, having sold off half the gas business 11 years ago, would get a good price for the remaining assets as demand for infrastructure assets from foreign investors has soared.

Citi added that the article suggested the disposal has been sanctioned by outgoing chief executive Steve Holliday, who announced last week that he will retire by the financial year end, March 2016.

"In our view, given the current full valuation of UK regulated assets, we believe a disposal of regulated network assets is a good way to monetize these valuations and should be welcomed by the market," Citi said.

However, analysts wondered if the transaction premium to regulatory asset value (RAV) live up to share price implied RAV premium.

Citi remained 'neutral' on National Grid's shares, which have retreated from six-month highs after Holliday's announcement, and were up 0.15% on Monday at 895.3p, with the company also revealing it has requested the US state of Massachusetts increase its prices.