By Gill Plimmer From Financial Times UK

Jersey registration of holding company under review as group concedes public concern

One of Britain’s biggest water companies is reviewing its use of offshore holding companies after conceding that the industry faces a crisis of public trust.

Yorkshire Water said it would review the Jersey registration of its holding company, Kelda Group, and would close three subsidiary companies in the Cayman Islands.

There has been sustained public criticism of water companies such as Thames Water, with complex ownership structures. The opposition Labour party has threatened to renationalise the sector, accusing private owners of water companies of profiteering and failing to invest.

“There is a real challenge to the water industry’s legitimacy at the moment,” said Liz Barber, Yorkshire Water’s group director of finance, regulation and markets.

“Complex financial structures only add to public concern as to the way in which companies are financed. We have some offshore companies in our structure which are no longer necessary or appropriate and we’re taking steps to remove these as soon as possible.”

A spokesman for Yorkshire Water, England’s fifth largest supplier of water and waste services, said the Jersey registration was “under review as with the rest of the structure”.

He said it had been set up to “give shareholders more flexibility over the payment of dividends rather than for taxation purposes”. He added that removing the Cayman Island companies “is a complex legal exercise” that “will take some time to achieve”.

As of 2015, the three Cayman Island companies, Yorkshire Water Services Odsal Finance Holdings, Yorkshire Water Services Odsal Finance Ltd and Yorkshire Water Services Bradford Finance Ltd, were the issuers of nearly £2.9bn of bonds and had more than £780m of credit facilities.

Ms Barber said the company would also seek to reduce its £4.5bn debt to about 70 per cent of its total asset value by 2020.

Yorkshire is owned by Kelda Group, whose shareholders include GIC, a Singaporean-based investment fund, FTC, an Australian based pension fund, and a fund managed by Deutsche Bank, which has put its 23.4 per cent stake in the business up for sale.

Ms Barber said the company used Cayman Islands subsidiaries to issue bonds, not to evade tax as is often assumed.

“There is no reason for them not to be listed in the UK,” Ms Barber said. “Even though we say in our annual accounts they are nothing to do with tax, we think we may as well put our energy into moving them rather than explaining that.

“We are providing two essential public services — water and sewage — and therefore our bar for legitimacy is higher and we have to go the extra mile to remove anything that causes doubt.”

In its 2017 annual report, Yorkshire Water said the three Cayman Island companies had been formed in order to raise debt on the bond markets. It added that, while the companies were no longer needed, “to unwind this structure would incur substantial cost for minimal benefit”. It added that all three companies were wholly resident in the UK for tax purposes.

Yorkshire Water first announced the decision at credit rating agency Moody’s 2017 UK water sector conference last week.

At the event, Cathryn Ross, chief executive of Ofwat, who is leaving after four years at the regulator, also warned the industry that it was “being scrutinised more than at any time in the last 30 years”.

Ms Ross described the scrutiny as a “wake-up call” and said companies must do more to address lingering public concerns. These include the perception that boards are “stuffed full of investors”, that companies are “making every call in the interests of investors rather than customers” and that there is a “lack of transparency” around finances.

“If we are successfully going to meet the legitimacy challenge that is being posed to the sector, we need to be able to demonstrate that, despite people’s suspicions, water companies are indeed being run in the public interest,” she said.

IMAGE: Yorkshire Water is England’s fifth largest supplier of water and waste services © Dominic Lipinski/PA

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