Britain’s troubled waters: sleeping watchdog allows foreign vulture firms to loot our public utilities, says ALEX BRUMMER
The debt-fueled model that has pushed Thames Water to its limits is one of the great scandals of our time.
Proponents argue that utilities throw away regular, annuity-like income and are thus well suited to keep layers of borrowing on their books. Fine, in theory.
But such financial engineering bypassed the obligation to replace hundreds of miles of leaking Victorian pipes under London and clean dirty, sewage-laden waterways.
Thames Water is a classic study of how bad ownership structures backfire. It has been a financial orphan since privatization.
In 2000, German energy and water giant RWE pulled it off the public market, with a £4bn bid that was accepted by the board.
Looted: The recent owners of Thames Water have saddled the privatized public utility company with huge debts
RWE then reaped £1 billion in dividends in five years of ownership. It withdrew in 2006 after becoming the target of political criticism over spills, drought orders and executives’ lavish lifestyles.
The highest bidder was “vampire kangaroo” Macquarie, the Australian company whose model is to load companies it owns with debt and obtain maximum dividends for private investors.
As criticism of Macquarie increased, attempts were made to diversify ownership.
Then-Chancellor George Osborne made a grand reveal that he had secured an investment from China.
The Ontario Municipal Employees Retirement System also built up a large stake along with Infinity Investors (controlled by Abu Dhabi) and Kuwait.
A new boss, Steve Robertson, was brought in from BT in 2016 with the task of creating a softer and friendlier Thames. He left abruptly three years later after a clash with the board over not plugging the leaks.
His replacement Sarah Bentley has now jumped ship, sparking another crisis.
Bentley struggled with £14 billion in debt and the need for fresh capital to keep the company afloat as it tackled historic issues.
The succession of fumbles reflects horribly on successive governments. Thames was allowed to fall into predatory foreign ownership and little effort was made to correct slack and financially naive regulation by Ofwat.
Demands for renationalisation before the taps of 15 million customers run empty are increasing. A temporary rescue may be necessary.
But the firm goal of ministers and regulators should be to require investors, some of the wealthiest owners in the world, to conjure up the resources necessary to stay afloat.
Overseas ownership without responsibility should not be an option.
Excess profits
While training at a gym in Kensington this week, I got involved in a conversation with a private equity entrepreneur with interests in hospitality chains.
In a sharp departure from conventional wisdom, he suggested that the jump in energy costs and increasing labor shortages were not really a problem at all.
High inflation provided an opportunity to restore weak profit margins.
The economies of the companies in his portfolio now looked much healthier than before the Covid and Ukraine war shocks and there seemed to be room to expand margins further.
The Bank of England, among others, has dismissed profit as a problem, but the story is changing.
European Central Bank President Christine Lagarde did not hesitate to say that corporate profits were the biggest driver of consumer prices in the EU over the past year.
Her comments are consistent with those in an International Monetary Fund paper.
It shows that profits are responsible for 45 percent of the price increases since the beginning of last year.
If companies had been more cautious about pushing up margins and prices, UK inflation could be about half the current 8.7%.
Politicians should crack down on companies that treat customers with contempt.
Ugly ducklings
The shenanigans during the Revolution Beauty AGM and three directors’ contempt for shareholder votes are not edifying.
Nor is it true that the re-installed directors are trying to capture stock options while the re-listed stocks are rising.
The difficulty is that the campaign against the board is led by Boohoo, with a 26.6 percent stake.
This year, the founders of Boohoo introduced a £50 million incentive scheme. It also has an unsavory track record of intercompany and family transactions and poor factory conditions.
Hard to be sympathetic.