It is ironic when all the concern is over high levels of debt that ITT is to split out its water business into a new company called Xylem. It then plans to raise $1.2 billion in debt to pay off the parent company. Xylem’s 2010 revenue was $3.2 billion but most of its income comes from pumps (87%), brands like Flygt and Lowara.
This financial engineering may make sense to the money markets but the concern has to be whether it diverts attention from its customers and its core business. The water sector is in for a turbulent few years as it can not escape the ramifications of the Euro crisis and drive by Europe and America to reduce debt. This potentially has a big impact on future water investment as funding from the state for water infrastructure projects is bound to get reduced.
Xylem may be insulated to an extent as much of the market for pumps is of course replacement of worn out assets. The concern has to be whether its really healthy for companies like Xylem to have so much debt or will they suffer the same fate as Southern Cross?
No comments:
Post a Comment