{"id":35999,"date":"2023-10-06T18:38:23","date_gmt":"2023-10-06T17:38:23","guid":{"rendered":"https:\/\/www.themintmagazine.com\/?p=35999"},"modified":"2024-01-02T16:17:52","modified_gmt":"2024-01-02T16:17:52","slug":"which-way-will-water-flow","status":"publish","type":"post","link":"https:\/\/www.themintmagazine.com\/which-way-will-water-flow\/","title":{"rendered":"Which way will water flow?"},"content":{"rendered":"

Justin Taberham<\/strong> examines the prospects for the UK water sector.<\/span><\/p>\n

Near daily media interest and criticism of water companies\u2019 pollution performance has lately been often stimulated by public reporting or legal action against them. In addition, debt loadings for some companies are at unsustainably high levels and investors have had to inject further capital into companies. So it is hardly a surprise that there is significant pressure on the government to act and a wide-ranging discussion has begun on the future of the industry and what reform is required.<\/span><\/p>\n

So how did we get to this point?\u00a0 Privatisation in 1989 seemed to make a pretty good start: the government assumed responsibility for the English water industry\u2019s total debts amounting to \u00a35bn and granted the water companies a further \u00a31.5bn in what was denoted a \u201cgreen dowry\u201d of public funds.\u00a0 Ordinary people from beyond the usual share buyers were encouraged to buy shares with the slogan \u201cYou could be an H2Owner\u2019 and the offer was hugely oversubscribed.<\/span><\/p>\n

Since privatisation there has been a migration of the sector towards a model of private finance and a rise in Private Equity (PE), sovereign wealth fund and pension fund investors, which has become very common in the infrastructure sector globally.<\/p><\/blockquote>\n

This, though, changed pretty quickly.\u00a0 Since privatisation there has been a migration of the sector towards a model of private finance and a rise in Private Equity (PE), sovereign wealth fund and pension fund investors, which has become very common in the infrastructure sector globally.\u00a0<\/span><\/p>\n

As of 2021, only three privatised companies remain listed on the London Stock Exchange, three are delisted and the other nine are owned by Special Purpose Vehicle (SPV) companies. Currently, <\/span>more than 70% of the sector<\/span><\/a> is owned by overseas investors.\u00a0<\/span><\/p>\n

Allied with this migration is a growth in the complexity of company structures and a rapid change in the way that debt is utilised. Several companies from the early 2000s have used a structure called Whole Business Securitisation\u2019 (WBS). This model can take advantage of the fact that a company with higher debt loadings can be allied with more \u201csteady\u201d credit ratings, given the secure future income stream from customers. The WBS model also allows for increased returns on investment.\u00a0<\/span><\/p>\n

In response, debt loadings within the sector have risen rapidly. (See box: <\/span>English water company debt and investment<\/span><\/i>)<\/span><\/p>\n

English water company debt and investment<\/div>
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Thames Water<\/strong><\/h6>\n