Exclusive: Kuwait sovereign fund's UK unit buys NSMP for $1.7 billion - source

By Guy Faulconbridge

LONDON (Reuters) - The British infrastructure arm of Kuwait's sovereign wealth fund said on Monday it had agreed to buy oil and gas pipeline firm North Sea Midstream Partners (NSMP) from private equity firm ArcLight Capital.

Wren House, the London-based infrastructure investment arm of the Kuwait Investment Authority (KIA), declined to disclose the financial terms of the transaction. However, two sources told Reuters it was paying around 1.3 billion pounds ($1.70 billion).

Wren House fought off bids from JP Morgan , Blackstone , and private equity fund KKR to buy NSMP, according to one of the sources.

"Wren House was bidding against some very big players and they simply offered the best terms," said the source.

Its bid was lower than one other but it offered better overall terms, according to one of the sources.

The current management team, including NSMP CEO Andy Heppel, will remain, the source said.

NSMP was valued at around 1.2 billion pounds to 1.3 billion pounds ($1.6 to $1.7 billion), the sources said.

Wren House is headed by Hakim Drissi Kaitouni, a former investment banker who worked at Bank of America Merrill Lynch in London and New York.

"NSMP's catchment areas, in particular the West of Shetland basin, represent one of the most promising areas in terms of exploration and future developments," said managing director Drissi Kaitouni.

The Sovereign Wealth Fund Institute ranks KIA as the world's fourth-biggest sovereign fund, managing $592 billion. Only Norway, China and United Arab Emirates have bigger sovereign funds.

Wren House's other investments in the United Kingdom include stakes in Associated British Ports, London City Airport and Thames Water.

NSMP owns a 67 percent interest in the SIRGE pipeline that transports natural gas from the West of Shetlands basin and a 100 percent interest in the FUKA pipeline which transports gas from the SIRGE pipeline and various fields in the northern and central North Sea.

NSMP also owns the St. Fergus Gas Terminal and Teesside Gas Processing Plant. NSMP counts the Rhum gas field, in the North Sea and which is 50 percent owned by the Iranian Oil Company, among its clients.

Bank of America Merrill Lynch advised ArcLight on the transaction. Patrick de Loe, Merrill's managing director of EMEA infrastructure, declined to comment.

Freshfields Bruckhaus Deringer was ArcLight's legal adviser. Wren House was advised by Jefferies and Macquarie Capital. Its legal advisor was Slaughter and May.

Wren House said the transaction was expected to complete in 2018, following the receipt of merger clearance.

($1 = 0.7632 pounds)

(Reporting by Guy Faulconbridge; additional reporting by James Davey; editing by Kate Holton, Jason Neely and Jane Merriman)