It has been all change in the ownership of Northumbrian Water with UK Water acquiring the company for £2.41 billion. UK Water is a consortium of Hong Kong companies ultimately owned by Li Ka-shing, supposedly Hong Kong’s richest man. Cambridge Water has been sold to South Staffordshire Water and a Canadian Infrastructure fund Capstone Infrastructure has bought a 70% stake in Bristol Water with Agbar, the Suez Environment subsidiary retaining 30%.
It is not hard to see why the water sector is proving so attractive. It offers secure long term investment that is almost risk free and an attractive rate of return of somewhere between 6 and 13%. With the 5 year regulatory cycle investors can be certain of the return until the next periodic review and even then with so much investment linked to the existing asset base and of course with zero risk of demand for water reducing investors can be confident that similar returns will continue. There is not many investments in the current climate that are so safe.
The water industry does need investors given the need to finance the massive capital programmes. But the question has to be asked that if investors continue to be willing to value companies at well above the regulated asset value is the returns set by Ofwat too generous and are customers getting a poor deal?
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