Qatar interested in Thames

Qatar, UBS eye RWE unit Thames Water: report

5 August, 2006

LONDON: Qatar's state-owned investment fund has teamed up with Swiss banking giant UBS to bid for Britain's largest water and waste group Thames Water, the Financial Times reported yesterday.
RWE, the German power group that owns Thames Water, is looking to either sell or float the utility.
The FT did not name its source, but said UBS would use its Global Infrastructure fund, launched in May, to provide part of the financing for the deal, which could value Thames Water at up to £7bn ($13.2bn).

The move by the Qatar Investment Office comes as Gulf governments seek to diversify their holdings by investing huge sums of capital earned owing to record oil prices, the business daily added.
Meanwhile, people familiar with the matter said yesterday that bidders for Thames Water have been given an extra week to submit first-round offers.

The bidders, whose offers were initially due next week, now have until August 15 to make indicative offers for the water business, the people said.

Water companies are attractive acquisition targets for financial investors because they operate as regulated local monopolies. This gives them a stable flow of revenue, which makes it easy to raise debt and pay off the interest.

The large size of Thames Water makes it a big chunk for most financial bidders, however, and is forcing most of those interested into a race to form consortia.

Several such groupings are likely to bid, including one led by Guy Hands's Terra Firma Capital Partners and another by Australia's Macquarie Bank Ltd, the sources said.
Other bidders are likely to include financial buyout firms and infrastructure funds.
UK-listed buyout group 3i Group has linked up with Canadian investment fund Borealis Infrastructure.
A spokeswoman for UBS declined to comment on Thames but said UBS is setting up an infrastructure fund to invest in such assets.

"UBS Global Asset Management, together with UBS Investment Bank, has launched a new business that establishes and manages infrastructure funds globally," said the spokeswoman.
"The business, called Infrastructure Funds Management, will originate and manage funds of listed infrastructure securities and, working with UBS Investment Bank, funds which invest directly in infrastructure and utility companies around the world."
Other funds from the Middle-East and Asia are scrambling to join one of the consortia to bid for Thames.

Funds looking to tie up with investors may also include investment vehicles owned by the governments of countries such as Singapore or Dubai. Among trade bidders interest could be more limited.
Regulatory issues are likely to limit interest from existing British water companies, which are not allowed to buy each other, and even Macquarie would have to find a way of hiving off its existing UK water business if it buys Thames. The Australian bank owns South East Water.

Scottish and Southern Energy, which generates, distributes and supplies power and also owns gas pipelines, has received an information pack but is unlikely to make an offer for the business, the sources said.

RWE has said it is considering a market flotation of Thames, Britain's biggest water supplier which provides water to 13mn people and sewerage services to 8mn in and around London.

Deutsche Bank and Goldman Sachs, which are running the sale for RWE, are also going ahead with the initial public offering process - due to culminate around November - while they consider bids for the company.

The businesses being hived off include both the regulated assets and unregulated operations, the sources said.

Terra Firma has hired former United Utilities chief executive John Roberts to lead its effort and is co-investing with other financial bidders.

Thames - which wants to limit the use of water in London because of a severe drought - said in June annual profit rose 31%.

RWE bought Thames Water for 7.1bn euros in 2000, and it bought American Water, which it also plans to sell or list, for 4.5bn in 2003.

The German group aims to sell the water business to focus on its more profitable electricity and gas operations, like its bigger listed rival E.ON. - Reuters