RBS to sell Southern Water for £4bn

Royal Bank of Scotland’s private equity arm has put Southern Water up for sale with a price tag of about £4 billion. The UK utility is likely to attract a number of potential suitors.

Royal Bank of Scotland’s buyout arm is set to capitalise on soaring demand for utility assets by selling UK-based Southern Water, in a deal that could be worth up to £4 billion.

RBS Equity Finance has appointed Deutsche Bank to conduct a strategic review of the business. The most likely outcome is a sale of the company, which supplies water to about a million people in the south of England and has assets of about £3 billion. A sale could value the company at about £4 billion, according to city sources.

Southern Water

RBS bought Southern in 2003 under a complex arrangement with French group Vivendi Enviromement, in a deal worth about £2 billion. Under the current ownership structure, its actual stake is just under 50 percent, but it effectively controls 94 percent of the economic interest. A number of US hedge funds have also since bought stakes in the company.

Water companies have been increasingly targeted by private equity firms and infrastructure funds, attracted by their long-term revenues and stable cashflows. Last year Macquarie won an £8 billion auction for Thames Water, beating off competition from buyout firm Terra Firma, Australian investor Alinta, and a Qatari group bidding in conjunction with UBS. Anglian Water was also sold to an international consortium of private investors led by UK-listed private equity group 3i.

Another possible suitor for Southern is Ontario Teachers Pension Plan, a Canadian pension fund that has recently been stepping up its principal investment activity. Teachers is already active in the sector: it recently bought two Chilean water companies, while it has also held a 25 percent stake in Northumbria Water, another UK water company, since 2005.