LONDON: British water and power firms are trying to soothe nerves over nationalisation in the event of a Labour government, although some fund managers and lawyers doubt so-called Corbyn-proofing will work.
Jeremy Corbyn, the opposition leader, has said the state would take control of Britain’s water, electricity, gas and railway operators, as well as Royal Mail and Royal Bank of Scotland if Labour wins power.
The privatisation of utilities, which began in the 1980s under Margaret Thatcher’s Conservatives, has been a divisive issue. While supporters say consumers get a better deal, critics argue that there is no place for profit in public services.
Now, with Labour gaining in the polls and a general election seen as more likely following a delay to Britain’s European Union departure, companies and investors are taking the possibility of nationalisation seriously.
Thames Water, for instance, added a clause to its bonds to ensure holders are repaid immediately should it be nationalised.
Bankers say this reflects demand for extra protection as investors grow more wary about British utilities.
While references to nationalisation as a default event for utility companies are not new, several lawyers said they are seeing a surge in company inquiries about inserting such clauses, as well as an increase in investment firms seeking advice.
Reuters reported last year that many foreign pension and investment funds were opting to shift their stakes in UK utilities to jurisdictions such as Hong Kong, where bilateral treaties protect against asset expropriation. Lawyers said this process was continuing.
Some companies began seeing higher borrowing costs last year and a London-based capital markets banker highlighted the case of Western Power Distribution, which was unable to tighten the pricing on a £350 million ($452 million) bond in October.
“We have seen some foreign investors hold their hands up and say we are not looking at UK infrastructure,” the banker said. “There were a lot of questions about Corbyn on the roadshow.”
But can investors really insure against nationalisation? Some say a Labour government could simply change the law to annul a Thames Water-type provision and swap any cash due for government-issued gilts.
Harry Richards, who co-manages Jupiter Asset Management’s Corporate Bond Fund, said that whatever it may say before an election, a Labour government may ultimately not want to risk undermining business confidence with a change to the law.
— Reuters
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