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.
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