Water industry regulator Ofwat has launched a new consultation on issues arising from the recent change of control of South Staffordshire Water plc.
Ofwat has published its assessment of the change of control at the water company – the assessment is based on a review of the information provided to the regulator by the new owners and Ofwat’s own investigations on the new corporate structure using publicly available information.
The consultation follows on from the recent change in control of South Staffs Water following the acquisition of a controlling stake by Arjun Infrastructure Partners Limited (AIP) and the acquisition of
a significant minority stake by Mitsubishi UFJ Lease & Finance Company (MUL). In addition to these two new owners, existing owner Mitsubishi Corporation has been newly identified as an Ultimate Controller of South Staffs Water.
Ofwat’s conducts public consultation under a range of circumstances, including those instances where the identification of Ultimate Controllers is complex, as is the case here.
Independent infrastructure asset management company AIP acquired a 75% equity stake in South
Staffs Water from Kohlberg Kravis Roberts & Co. L.P (KKR) in July 2018.
KKR had held 75% of South Staffs Water since 2013.The change of control in South Staffs Water needed merger clearance from the European Commission due to the EU-wide interests of KKR and Mitsubishi; this was granted on 19 June 2018.
South Staffs Water informed Ofwat in October 2018 that funding vehicles established by AIP, with each receiving funding from institutional investors (the majority of which are pension funds
and the rest made up of banks and insurance companies) had (indirectly) acquired a 75% holding of
South Staffs Water. AIP then immediately sold a 19.9% stake on to MUL.
Writing to Ofwat in January 2019, MUL confirmed that it has an understanding of the regulatory environment acquired through the due diligence procedures it carried out to indirectly acquire South Staffordshire Plc’s shares.
The consultation paper states:
“MUL considers that it will meet its obligations as an owner of a licenced water company by being a long-term strategic investor and through its extensive experience of managing water and other infrastructure business globally.”
MUL owns less than 20% of South Staffs Water. According to the shareholders’ agreement between AIP, Mitsubishi Corporation and MUL which Ofwat has seen, MUL does not currently have the right to appoint a director to the board of South Staffs Water. They also do not have the power to veto, derail or block key board decisions.
Ofwat commented:
“We therefore conclude that MUL does not have material influence over South Staffs Water and is not an Ultimate Controller of the company.”
Based on the information received to date, Ofwat’s change of control assessment has not found any issues associated with the new investors that have purchased South Staffs Water.
Ofwat is now seeking comments on the following questions:
- Do you agree with our assessment of the incoming owners?
- What are your views on the ability of the new owners to run a regulated water utility?
- Do you have any concerns with the new owners that might affect the ability of South Staffs Water to fulfil its statutory duties and obligations under its licence?
- What are your views on our identification of the Ultimate Controllers?
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Deadline to submit responses is 16th April 2019 – click here to access the consultation paper
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