Exclusive: Minority investors eye Thames Water stake

Existing members of the consortium that owns UK utility Thames Water have set their sights on a 26 percent stake in the business being sold by Macquarie European Infrastructure Fund 2.

The sale process, handled by Nomura and initially set to conclude in Q3, is expected to be agreed by the end of this year, sources familiar with the process told Infrastructure Investor. “Thames Water was supposed to be happening rather shortly, it has been delayed a bit,” one of them said. The sale is understood to still be going through the pre-emptive process.

Macquarie declined to comment.

While some small investors are looking to sell alongside Macquarie, others see the upcoming transaction as a way to increase their holding in a trophy asset at a time when big-ticket sales are few and far between. Some also believe the timing is favourable, with the process getting under way soon after the conclusion of a five-year regulatory cycle.

“Some shareholders are sitting there with quite small stakes but would now be more likely to go for bigger stakes, so as to be represented on the board and get better veto rights,” a source said. “It’s possible that Macquarie could exit without putting it fully out to the market,” another person added.

Thames Water is Britain’s biggest water supplier by customers and by value, with a regulatory capital value of £12.2 billion ($16.1 billion; €14.5 billion), according to regulator Ofwat. Sources believe the transaction could value the asset at between £1 billion and £1.5 billion.

Current shareholders include BT Pension Scheme (13.1 percent), Infinity Investments (with 9.9 percent), China Investment Corporation (8.7 percent), QIC (8.7 percent), British Columbia Investment Management Corporation (8.7 percent), AMP Capital (5.5 percent), ABP (4.3 percent) and OpTrust (4.3 percent), according to a 2014 report by Ofwat.

Given the range of possible price tags, a number of investors are keeping all options open. “If the money being put on the table is quite attractive, we might be sellers; if it is ok-ish we might stay. And if we believe there’s still value on the table, we may expand out stake,” a large pension told Infrastructure Investor. “Other investors are looking at the same thing.”

Kemble Water, the Macquarie-led consortium that owns Thames Water, bought the company from German utility RWE in 2006 for £8 billion. The proposed sale comes as the Australian firm’s second European fund nears the end of its 10-year term.