Consolidation reduces pool of water stocks

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Ongoing merger activity in the water industry is threatening to reduce the universe of investible stocks. Who will step up to fill the gap?


The GWI Global Water Index posted a weighted gain of 1.8% this month, narrowly outperforming the benchmark MSCI World Index, which was up 1.5%.

Asian stocks generally did well, with the exception of Singapore-listed SoundGlobal, and the trio of Chinese listed water stocks covered by the GWI Index. Sound- Global shares plunged by 10% after it postponed a planned HK$1.36 billion ($175 million) dual listing on the Hong Kong Stock Exchange on 25 June, saying that the deal “cannot be concluded at this time on acceptable terms”. The funding would have allowed the company to expand its presence as an owner-operator of water and wastewater treatment plants.

Shanghai-listed stocks, meanwhile, took a hit at the end of June after the US based Conference Board revised its April growth figure for the leading Chinese economic indicators from an original 1.7% to 0.3%. This dragged the Shanghai Composite Index down, taking the water stocks with it: Tianjin Capital ended the month down 11.9%, while Beijing Capital slumped by a similar amount.

On a positive note, a brace of key contract wins in Cambodia helped Moya Dayen to end the month up nearly 30%, after it secured $50 million of new business with the Phnom Penh Water Supply Authority. The stock is GWI’s top performer in the Asian segment of the index this year, having gained 50% since the end of December 2009.

Northumbrian Water, meanwhile, made it into the top ten strongest performers this month on speculation of an imminent takeover bid from the Abu Dhabi Investment Authority. The company has long been the subject of acquisition rumours, but the challenge has always been to win over the affections of 26.8% shareholder the Ontario Teachers’ Pension Plan.

OTPP publicly declared in February of this year that it had no intention of launching a full takeover bid for Northumbrian, but now it seems that it is on the point of accepting a 375p per share offer for its stake from Abu Dhabi’s sovereign wealth fund. It is a good deal for the Canadian investor, and will mean that it has virtually doubled its money in five years. With the OTPP on board, the Arabs are expected to launch a full takeover bid, valuing the company at around £4 billion (see story p18).

The removal of Northumbrian from the London Stock Exchange will reduce the pool of quoted English water and sewerage companies to three. Elsewhere, consolidation is threatening to reduce the investible universe of water stocks even further: Sembcorp’s successful takeover of Cascal is expected to result in the de-listing of Cascal’s shares from the New York Stock Exchange on 6th August, while Agbar’s bid for local Catalan player CASSA could result in yet another de-listing (CASSA is not included in the GWI Global Water Index).

Who will step up to fill the gap? Anticipation is growing ahead of the likely flotation of EPC contractor VA Tech Wabag on the Bombay Stock Exchange later this summer, while Emirates-based plant developer Metito has taken on $40 million in preference share funding to tide it over until a planned IPO in 2012 (see story p18).