UK utility owners fear re- nationalisation by Corbyn

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UK utility owners fear re- nationalisation by Corbyn


Jeremy Corbyn
Jeremy Corbyn

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 ‘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.

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The privatisation of utilities, which began in the 1980s under Margaret Thatcher’s Conservatives, has been a divisive issue. Now, with Labour gaining in the polls, 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.

While references to nationalisation as a default event for utility firms are not new, several lawyers said they are seeing a surge in 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 shifting stakes in UK utilities to jurisdictions such as Hong Kong, where bilateral treaties protect against asset expropriation. Lawyers said this process was continuing. “Your biggest fear as a bond investor is if your bond gets nationalised for less than market value,” said Dan Neidle, partner at Clifford Chance. “Labour have said they will honour the debts of nationalised businesses, but a large number of investors and infrastructure businesses remain concerned.”

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 £350m 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.”

Reuters

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Irish Independent