NEWS
15/08/2012 09:59 BST | Updated 15/08/2012 13:53 BST

Foreign Investment In UK Water Companies Won't Affect Consumers

A takeover of listed UK water companies in the immediate future is unlikely, despite share price spikes and market rumours, analysts have told the Huffington Post.

Share prices of listed water companies increased yesterday, with the UK's largest provider United Utilities rising to 4.9%, with smaller rivals Severn Trent and Pennon also experiencing spikes.

Media reports are mixed with regards to the potential investors, but all agree they are likely to come from China, the Middle East or the Far East (if at all) because of the amount of cash needed to take part.

Among the rumours were that China Investment Corporation (a sovereign wealth fund) or Kohlberg Kravis Roberts (an American private equity house) may be weighing bids for the UK's largest water company United Utilities.

An international infrastructure consortium featuring Canadian pension fund Ontario Teachers and funds from Qatari Investment Authority and Abu Dhabi funds were also rumoured to be mulling a takeover.

David Battersby, investment manager for Redmayne-Bentley, told Huffington Post the drivers for share price spikes were more likely to be investors' continuing search for secure dependable incomes, also known as 'safe havens'.

"Many think the market is in fact cheap at the moment. However, with no proper end in sight for the Euro, investors are not investing for growth due the risk of a country exit," he explained.

In addition, any effect on consumers by foreign ownership of water companies would be virtually non existent, particularly as the owners would most likely keep the existing UK brand name to help maintain goodwill.

However, Chinese investment in listed and smaller water companies could be possible - especially given George Osborne's trade mission to woo Chinese investors in November 2011.

It wouldn't be the first time we'd seen Chinese investment either - Northumbrian Water was taken over by a Hong Kong based investment consortium controlled by billionaire Li Ka-shing in 2011.

Redmayne-Bentley's Battersby believes the same consortium could go for assets that are already in private hands, such as Yorkshire Water.

Angelos Anastasiou, analyst for Investec, added investment could only come from investors with vast sums of money; most likely from the Middle East, Far East or large pension funds such as Ontario, because others simply don't have enough cash.

"Even if that were to happen, the impact on consumers would be nil; the prices are set by the UK regulator," he added.

This is because water is highly regulated in the UK by Ofwat - which regulates financial elements of the water industry and the Consumer Council for Water, which protects consumers' interests.

Mergers between smaller water providers could be an area to watch for the future however. Graeme Young, a partner at law firm Dundas & Wilson, told Huffington Post some are calling for regulatory relaxations to make it easier for the smaller firms to merge.