Investors Eye £1.5bn Yorkshire Water Stake Sale

By Mark Kleinman, City Editor

The investors which own the parent company of Yorkshire Water are poised to put a £1.5bn stake in the company up for sale.

I have learnt that shareholders led by Infracapital, the infrastructure arm of the British fund manager M&G Investments, plan to sell a 30% stake in Kelda Group, which they paid roughly £3bn to take private in 2007.

Insiders said on Thursday that Kelda, which was acquired through a vehicle called Saltaire Water, could be worth as much as £5bn now, with a 30% stake raising as much as £1.5bn.

Kelda serves a population of more than five million people as well as 130,000 businesses, according to the company.

Infracapital plans to offload its entire 13% stake in Kelda as part of the deal, while Citi Infrastructure Investors, an arm of the giant Wall Street bank, wants to cut its 37% holding to about 20%, according to sources.

If they proceed with a deal, the Kelda stake sale would be one of the largest infrastructure transactions in the UK this year, and comes as the water industry prepares for its crucial five-yearly price review in 2015.

A research note from analysts at HSBC yesterday said that the window for mergers and acquisitions in the water sector was closing because of the impending regulatory review.

Macquarie, the Australian investment bank, has been appointed to handle the sale process by Kelda' shareholders and is understood to be taking initial soundings from potential investors. Macquarie is itself the controlling shareholder in Thames Water, although it sold a minority stake to China's main sovereign wealth fund, CIC, last year.

At £1.5bn, the available stake in Kelda may be broken into smaller chunks or sold in one block, insiders said.

Infrastructure assets such as water companies have become increasingly appealing to investors seeking stable income streams, particularly since the volatility precipitated by the banking crisis.

M&G, Infracapital's parent, is owned by Prudential, the insurance group. Last year, it participated in a takeover of Veolia Water RegCo, the second largest regulated water-only company in the UK, which provides water services to more than 3.5m people in three regions of northwest London and southeast England.

The other shareholders in Kelda, Deutsche Asset & Wealth Management, and GIC, an investment fund backed by the Singaporean government, are not planning to reduce their shareholdings as part of the new process.

None of the investors in Kelda would comment today.

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