23/01/2012

Changing ownership of UK water companies


Photo: construction underway at Peacehaven, Southern Water

The last few months has seen major changes to the ownership of the UK’s water companies. Cheung Kong Holdings has acquired Northumbrian Water, the Canadian investment fund Capstone has bough Bristol Water and this week came news that a Chinese wealth fund has acquired 8.7% of Thames Water. The later deal may have more to do with Santander selling its stake to raise cash due to the Euro Crisis and the withdrawal by investors of funds from European banks.

However its clear that the UK water sector remains very attractive to investors. This is further underlined by the successful bond issues by several water companies like the £250 million bond issue at 4.875% by Severn Trent. Its not surprising the water sector is attractive, given its totally secure cash flow – its customers wont stop using water! The regulated structure means that their income for the next few years is certain. Better still water prices are linked to the retail price index so are currently increasing by over 5% a year – not many businesses have that luxury.

The 64 000 dollar question is has the regulator got the balance right between a fair charge to customers and an adequate return to reward investors? The appetite to buy UK water companies implies not.

02/01/2012


The start of a new year is traditionally a time for looking forward. Although much of the news has been about the Euro crisis and current financial problems of most of the world’s major economies. The blog believes it is also a time to be optimistic.


Yes major change is happening, perhaps most importantly there is a huge demographic change underway as the average age in the G20 countries gets older. The post war baby boomers are now reaching their 60’s and this will have a profound impact on demand patterns.

                                                                     Graph copyright International eChem


 29% of the rich Western population are now in the New Old generation of 55+ years. Yet just a century ago, Western life expectancy was only 46 years. It was still only 66 years in 1950. Today, these 272 million people can expect to live until they are 80.

This change in age profile to many more people being ‘retired’ rather than being in their 20’s to 40’s, having families and buying new houses and cars will have a huge impact on demand. People in their 60’s plus don’t need new cars or houses, they have very different demands.

The blog written by my ex ICI Watercare colleague Paul Hodges gives a lot more detail on the changing population demographics and why this will create a New Normal. His blog is well worth reading www.icis.com/blogs/chemicals-and-the-economy/

There is a big paradigm shift underway. But any change like this brings opportunities especially for those first to realise what is happening.

The blog wishes you a successful and happy New Year.