28/02/11
Views expressed by investors and analysts at the City Conference this month could not have left anyone in any doubt about the industry's situation in terms of financing.
The equity investment case has been hit by the squeeze in returns to equity, which means that on many conventional metrics, the industry looks expensive relative to alternatives. As the listed water sector accounts for just 0.6% of the UK stock market, it is not a sector that investors are compelled to take a position on, and one investor noted that any clear investment case was being clouded by regulatory uncertainty.
Meanwhile, the debt community highlighted the decline in ratings over recent years. UK regulatory excellence still represents a significant positive contributor to the sector's ratings, but changes to it do present considerable risks to future certainty and confidence, even before the tightening effects of Basel 3 and Solvency 2 begin to impact debt availability.
As has been said many times before, the investment the sector needs has to be actively attracted, not taken for granted. The success of the past 21 years has been based on the industry's ability to obtain financing to invest in necessary service improvements at a price that customers have generally been able to afford.
The Secretary of State, Caroline Spelman, offered reassurance, saying that she understood this point and that government policy on the sector would have to ensure that investors were kept on board. We hope that her views are shared - and acted upon, where appropriate - by others in the regulatory and policymaking community who have a significant role to play in supporting companies' ability to attract additional investment in future.
Government's priority for water policy
Secretary of State Caroline Spelman's speech
The balancing act for a sustainable water industry
Water UK Chief Executive Pamela Taylor's speech
