Yorkshire Water says debt is 'under control' as it sets out £7.8bn spending plan
Customers have been told they will need to pay almost £150 extra per year by 2030 to help fund an infrastructure investment programme, which promises to reduce sewage discharges by 35 per cent.
Ms Shaw said Yorkshire Water, which has a net debt of £6.1bn, will also “need to borrow some more money” as it would be “unfair” for customers to foot the entire bill.
Yorkshire Water is one of the companies in the Kelda Group which routinely lend money to each other and charge interest.
It spent £360.9m on those interest payments in 2022/23 and it also paid out £62m in "dividends" to its parent companies to help cover interest payments on various loans.
Ofwat has previously raised concerns about Yorkshire Water’s finances and ordered it to reduce its level of debt.
The regulator has ordered two Kelda Group companies to repay £940m they owe to Yorkshire Water by March 2027, claiming it will "return significant equity".
Ms Shaw said the situation is “under control” and the company is being backed by shareholders who have promised to invest £440m in the business by June 2027.
The controlling company in the group, Kelda Holdings Limited, is registered in Jersey and owned by a consortium of private investment groups based in Singapore, the US and Germany as well as an Australian pension fund.
“We will be taking some more debt on,” said Ms Shaw. “We always look at the best things in the market at the time when we're going to raise some debt. It may be Eurobonds, or other things like private placement in the US, for example, or direct debt from banks. It depends on what’s right at the time.”
To raise money, companies in the Kelda Group issue Eurobonds on The International Stock Exchange in the Channel Islands (TISE). They are a form of loan repaid with interest.
Yorkshire Water Finance Plc has issued £390m worth of Eurobonds, and $180m of Eurobonds in US dollars, on that stock exchange since 2018.
Kelda Group said it issues the bonds in the Channel Islands “for ease of administration” but it can also benefit them HM Revenue & Customs’s Eurobond exemption,
The legal loophole means companies which issue the bonds (borrowers) do not pay tax when they send interest payments to overseas investors (the lenders).
In 2013, Parliament’s Public Accounts Committee warned that multinational companies were exploiting the loophole by lending money to their UK subsidiaries via companies in low-tax jurisdictions.
Those subsidiaries were loaded up with debt and they would then deduct large interest payments from their profits to cut their UK tax bill.
Kelda Group has stated its companies “do not use artificial tax avoidance schemes or tax havens to reduce our tax liabilities” and they are all “wholly and exclusively resident for tax purposes in the UK”.
In 2017, the group announced it was closing down three subsidiaries in the Cayman Islands, claiming offshore companies were “no longer necessary or appropriate” and “complex financial structures only add to public concern”.
However, the parent company of the group, Kelda Holding Limited, is still registered in Jersey and one of its subsidiaries, White Laith Developments Limited, is a joint venture between a British company and Kris Properties Ltd, which is registered in the British Virgin Islands.
Ms Shaw said offshore companies are an “important” part of the group and they work to support Yorkshire Water.
According to Ofwat, investment in the water industry has roughly doubled since privatisation in 1989, and companies spent around £6bn a year on upgrading their infrastructure between 2015 and 2020.
But they also paid out £57bn in dividends to shareholders of parent companies between 1991 and 2019.