Northumbrian confirms approach from Hong Kong

Northumbrian Water, which supplies 2.6 million people in the North East, has confirmed a takeover approach from Hong Kong-based Cheung Kong Infrastructure Holdings (CKI), the investment firm controlled by billionaire Li Ka-shing.

Shares in Northumbrian shot up earlier this week after CKI announced it was mulling an offer – reportedly to be for more than £2bn.

Analysts said CKI, which holds a joint 88 per cent stake in Leeds-based Northern Gas Networks, could end up paying 450-500p per share for Northumbrian.

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The water company would not comment on the value of CKI’s proposal.

A rise in inflation this year, from which UK water utilities are shielded through regulated returns, has increased their appeal to investors seeking the safety of predictable, long-term cash flows.

Northumbrian shares have often risen on speculation that its largest shareholder, Ontario Teachers’ Pension Plan with a 27 per cent stake, could make an offer.

CKI already owns Cambridge Water and has a 4.75 per cent stake in Southern Water.

It has infrastructure assets worldwide and recently completed a joint £5.8bn deal to buy 170,000 miles of electrical network covering London, the South East and eastern England from France’s EDF. It also owns a stake in Seabank Power, an electricity-generating company located near Bristol.

Northumbrian, which owns the huge Kielder reservoir in Northumberland, recently reported that profits rose by 6.3 per cent to £181m in the year to March 31.

Revenues increased by 4.7 per cent reflecting a five per cent price hike at the start of a new five-year regime agreed with regulator Ofwat.

More than a third of the UK’s infrastructure – including energy, water and transport – is now under foreign ownership, according to a report by the Office of Fair Trading (OFT).

The OFT said there were mixed findings on the impact of foreign ownership, with evidence of improved productivity and profitability in certain sectors, contrasted with negative effects for local communities when new owners look to restructure. But the study found reducing the barriers to foreign ownership widens the potential pool of competitors, which can drive down prices.