Yorkshire Water investors look to sell £4bn stakes
Move comes ahead of regulatory review expected to hit sector profits
Investors in Yorkshire Water are rushing to sell their stakes for an estimated £4bn ahead of a tough regulatory review this month that is expected to hit profits across the industry.
Yorkshire Water, which supplies water and sewage services to around 5m people and 130,000 businesses, is owned by parent company Kelda Group, which is registered in Jersey. Two of its investors — Deutsche Asset Management and the private equity fund Corsair Capital — are selling their stakes, which together amount to a majority of 55 per cent, according to people briefed on their plans.
The attempt is one of several potential stake sales in the market, as privatised water companies come under increasing pressure from regulators and politicians. The opposition Labour party has threatened to renationalise the sector, accusing private owners of water companies of profiteering and failing to invest.
Water regulator Ofwat has warned of a “tough new regime” that will reduce the prices water companies can charge customers. It is due to confirm its plans on December 13 for the next five-year regulatory period, which starts in 2019.
One water company investor said Ofwat’s review was likely to be priced into the stake sales. “The vendors will be thinking this is not the risk/return they want. It’s all got a little too heated,” he said.
He added that there was “a lot of hostility between water companies and the regulator”.
“Nobody minds tough regulation but they do mind when it’s unpredictable and hostile. It’s an angry dog barking to keep the burglars away when actually what you want is a proper security system.”
Last week Ofwat criticised, Thames Water, Bristol Water, Dee Valley Water and Southern Water for “basic data errors” on issues ranging from customer bills to the number of leaks they suffer. It put them in its lowest category and said they would have to publish plans on how they will improve their data presentation before they publish their annual reports.
This year the Australian infrastructure bank Macquarie sold off its final stake in Thames Water. The infrastructure fund 3i is understood to be selling its 15 per cent stake in Anglian Water to a consortium of pension funds. South Staffordshire Water is also rumoured to be up for sale.
International pension and sovereign wealth funds are the most likely buyers for Yorkshire Water. “It’s partly debt and part equity but it’s still a big cheque; it’s hard to find investors with that kind of capital in the UK,” said one investor in the water industry.
Yorkshire Water was the first water company to publicly pledge to clean up its act. In October it told a conference held by rating agency Moody’s on the potential renationalisation of the industry that it would review the Jersey registration of its holding company and would close three subsidiary companies in the Cayman Islands. “There is a real challenge to the water industry’s legitimacy at the moment,” said Liz Barber, Yorkshire Water’s group director of finance, regulation and markets.
Other companies have followed, with Thames Water, Britain’s biggest water company, pledging to close its subsidiaries in the Cayman Islands and halting dividends to shareholders for the next year.