Macquarie to complete £1.5bn sale of stake in Thames Water
Buyer set to be announced in March after deal delayed by UK decision to leave EU
Macquarie, the Australian infrastructure bank, is hoping to complete the £1.5bn sale of its 26 per cent stake in Thames Water next month after the disposal was delayed by Britain’s decision to leave the EU.
Although shareholders including the BT pension fund, Abu Dhabi Investment Authority and China Investment Corporation, are understood to have declined their right of first refusal to buy the stake, a host of pension funds including Borealis and USS are thought to be in the running.
A shortlist is expected to be drawn up this month with the winner announced in March, people familiar with the sales process said. Macquarie is hoping to raise between £1bn and £1.5bn from the sale.
Thames Water is Britain’s biggest water supplier by customers and by value, with a regulatory capital value of £11.9bn. It provides about 2.6bn litres of tap water to about 9m customers per day in London and the Thames Valley region, as well as treating 4.4bn litres of sewage for customers.
The sale was due to be completed by Christmas but analysts said it was delayed because of the high price for the “trophy” asset. Potential buyers also paused to assess the political and economic consequences of Brexit, even though the sales process then resumed.
Stakes in a number of other UK water companies were also up for sale, adding further complications they said. Last week Hastings Funds Management, the Australian infrastructure investor, said it would buy half of South East Water from La Caisse de depot et placement du Quebec, for example.
British water companies are increasingly popular targets for overseas institutional investors because they deliver steady income streams over a five-year period. But the number of water assets available to buy in Europe is limited because England and Wales are among the few countries to have privatised their water supplies.
Macquarie is understood to be asking for a minimum price of 1.3 times Thames Water’s regulated capital value for its 26.3 per cent stake. The timing of the sale is driven by the 10-year life of most Macquarie funds, and also fits in with the regulatory cycle for the water industry.
The sale, which is being handled by Nomura, comes 10 years after a consortium including Macquarie bought Thames Water from RWE for £8bn. The proceeds are expected to go to investors in the Macquarie Infrastructure and Real Assets managed funds.
Thames Water was warned by a judge last week that it would receive its “biggest fine in history” after dumping millions of litres of sewage into the river Thames at sites in Henley-on-Thames, Didcot, Little Marlow and Littlemore.
The company was fined £1m for repeated sewage leaks into the Grand Union canal. It and other water companies were also criticised by the National Audit Office for taking excessive profits, while paying no corporation tax.
The stake sale comes just months after construction started on a £4.2bn, 16-mile “super-sewer” to prevent raw sewage overflowing into the Thames. Thames Water and the government have set up Bazalgette Tunnel Limited, a separate company, that will own, manage and finance the project during construction. Thames Water is planning to raise customers’ water bills from April next year to help pay for the tunnel.
In addition to its stake in Thames Water, Macquarie managed funds own stakes in three UK power stations, airports and Arqiva, the mobile and TV mast company.
Macquarie, Borealis, USS, BT pension fund and Abu Dhabi Investment Authority declined to comment. China Investment Corporation did not respond to request for comment.