* 4 bln stg to be returned to shareholders
* National Grid shares up 6.1 pct
* Deal expected to be completed by end Q1 2017 (Updates with details, comment)
LONDON, Dec 8 (Reuters) - Britain's National Grid NG.L has agreed to sell a 61 percent equity interest in its UK gas distribution business to a group of investors, including China's CIC Capital, in a deal valuing the unit at around 13.8 billion pounds ($17.5 billion), it said on Thursday.
National Grid, which first announced plans to sell a stake in the unit last year, said it wanted to return some of the value it had created in the networks to its shareholders. As part of the deal, 4 billion pounds will be returned through a combination of share buybacks and a special dividend.
The deal with the consortium comes at a time when overseas investment in British infrastructre is under scrutiny. Earlier this year Prime Minister Theresa May signalled the government would take a cautious approach over foreign investment in significant infrastructure projects. gas distribution networks cover about 11 million people in the east of England, north London, the North West and West Midlands.
The regulated revenues from Britain's gas and electricity network infrastructure has proved attractive for investors.
Britain's second-biggest energy supplier, SSE (LON:SSE.L), in October, agreed to sell a third of its 50 percent stake in regional gas distribution business SGN to Abu Dhabi Investment Authority (ADIA) 621 million pounds. completion of Thursday's deal National Grid will receive a payment of 3.6 billion pounds in cash from the consortium and will own a 39 percent minority equity interest in a new holding company.
"National Grid's portfolio will be rebalanced towards higher growth assets, whilst maintaining a strong balance sheet and supporting our sustainable dividend policy," National Grid Chief executive John Pettigrew said in a statement.
The deal, which National Grid said implies an enterprise value for the unit of around 13.8 billion pounds, is expected to close by the end of the first quarter next year, it said.
Shares in National Grid were up 6.1 percent at 0923 GMT, outperforming the FTSE 100 index .FTSE which was almost flat.
The consortium, called Quad Gas Group, comprises Macquarie Infrastructure and Real Assets, Allianz (DE:ALVG) Capital Partners, Hermes Investment Management, CIC Capital Corporation, Qatar Investment Authority, Dalmore Capital and Amber Infrastructure Limited/International Public Partnerships. ($1 = 0.7908 pounds)