BT pays up for a seat on Thames’ board
- From: Vol 13, Issue 6 (June 2012)
- Category: General
- Region: Europe
- Related Companies: Equity Partners and Kemble Water Ltd
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The prospect of a seat on the board of the UK’s largest water utility is likely to have resulted in an attractive exit price for two of Macquarie’s infrastructure funds.
The BT Pension Scheme is likely to have paid a significant premium for the 13.2% stake it acquired in Thames Water’s holding company last month, relative to the last known price to be paid for the company’s equity.
That amounted to £36.6 million for a 1.24% residual interest in Kemble Water Holdings Limited, which the small New Zealand-based Equity Partners Infrastructure Company sold to the Abu Dhabi Investment Authority at the end of last year. This would imply a valuation of just under £390 million for the stake that the UK’s largest private sector pension fund bought through Hermes GPE, but it appears to have paid more than 15% over that figure.
“My best guess is that the price they paid is closer to £500 million than £400 million,” said a source close to the sales process. “The EPIC sale involved a much smaller stake that did not provide a seat on the Kemble board, and you would expect to pay a premium for a 13% stake that makes you the second-largest investor.” The Macquarie Infrastructure Fund II remains the largest single investor, with around 25%.
The outlook for Thames from the perspective of its holding company investors has also improved. The financial figures for 2011/12 that the water company published on 11 June showed that while overall dividend payments increased only marginally from £271.4 million to £279.5 million versus the previous year, “external dividend distributions” – as opposed to those required to meet the holdco’s debt servicing requirements – rose from £115.1 million to £165.1 million.
Meanwhile, the risks to the business associated with the £4.4 billion Thames Tideway sewer tunnel project have receded, as confidence grows that the water company will not have to fund the scheme on its balance sheet – despite the continuing absence of a firm alternative financing proposal.
“There’s more and more certainty now that it’s going to be a totally separate ringfenced entity,” said one adviser. “It really hasn’t surfaced as a major concern for investors in any of the recent deals in the Kemble equity.”