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Veolia UK water stake sale gets underway
July 7, 2009 / 1:08 PM / 9 years ago

Veolia UK water stake sale gets underway

LONDON (Reuters) - Veolia Environnement (VIE.PA) is likely to receive non-binding expressions of interest by the end of July for a 49 percent stake in its UK water arm, a person familiar with the matter said on Tuesday.

The French water and environmental services company is seeking to sell the stake, which could be worth 500 million pounds or more, as part of its 3 billion euro (2.6 billion pounds) asset disposal plan for 2009-2011.

The sale covers Veolia’s three water supply companies in South East England, and some non-regulated water businesses, but not its wastewater operations. Veolia supplies more than 3.5 million customers in Britain.

Interest has come from as many as two dozen parties, the person said, including British and continental European infrastructure funds, and Middle Eastern sovereign wealth funds (SWFs).

Veolia was not immediately available to comment.

As well as financial investors, who could make use of Veolia’s sector know-how, some interest may come from trade rivals who may lodge bids for 100 percent of the business, the person said. Bidders are signing confidentiality agreements and will receive information memorandums soon.

The business, which is not highly geared, will take on extra leverage to enable it to achieve the returns sought by financial investors, the person added.

The sale is complicated by the price review that Ofwat, the UK water regulator, is working on for 2010-2014. Ofwat will set draft limits on the prices water companies can charge later this month and will publish “final determinations” in November.

    Veolia is likely to seek binding bids before then but bids will be adjustable based on Ofwat’s final pricing limits.

    Ofwat assessed the “regulatory capital values” of Folkestone & Dover, Tendring Hundred and Three Valleys, Veolia’s three UK water supply companies, at about 884 million pounds at end-March. Veolia will hope any sale can be struck at a premium to the regulated value.

    The sale will also include some of the unregulated businesses, based around long-term water projects, which Veolia bought from Thames Water in 2007 for 78 million pounds.

    HSBC and Morgan Stanley are running the sale.

    additional reporting by Benjamin Mallet in Paris; Editing by Douwe Miedema and Hans Peters

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