Analysts are scratching their heads over how much Veolia Environnement actually raised from the sale of its UK regulated water business.
Intrigue surrounds how much Veolia Environnement actually raised from the sale of its regulated UK water business at the end of June to a joint venture of Infracapital and Morgan Stanley.
While the French company maintained that the “transaction value” of the deal was £1.236 billion – implying that it had achieved a premium of 30% to the £948 million regulated asset value of the three water-only companies that form the business – experienced industry observers and analysts doubt this is really the case.
“That just cannot be right,” said one long-time industry consultant. “All things considered, it looks way too high to me.”
It certainly seems improbable that Infracapital and Morgan Stanley would have paid such a top premium, given the limited auction that took place for the busi- sixness (it is believed only two firm bids were ultimately received) and the medium-term outlook (the Veolia Central company that accounts for around 85% of the combined regulated asset value expects to see its RAV decline by 6.5% between now and 2015).
It is difficult, however, to assess the actual price paid at this point. For not only has Veolia agreed to retain a 10% stake in the business, but the latter’s debt also needs to be subtracted from the proceeds that the French company will receive. While the current gearing of the three companies will not be known until they submit their regulatory returns for 2011/12, an overall leverage of 60% of RAV (an estimate that is probably on the low side) would knock a further £568 million off the cash receivables.
Furthermore, it is understood that Veolia Environnement has included some indirect benefits in the announced headline figure in order to maximise it – and persuade the financial markets that the €5 billion disposals programme to which the company is committed is making solid progress.
The industry may get a better idea of the true position when Veolia Environnement publishes its half-year results early next month, in which it will have to declare the profit it has made from the disposal. Insiders have suggested that the figure may be rather less flattering that the one issued with the announcement.
“There’s quite a lot of smoke and mirrors,” said independent industry analyst Robert Miller-Bakewell. “There were certainly not enough facts in the announcement to draw any sensible conclusions.”