Foreign investors erect Corbyn firewall
Companies look to move assets offshore to avoid renationalisation by future Labour government
RISING fears of a Corbyn government are prompting foreign investors in Britain to prepare legal counter-measures to prevent their assets being nationalised against their wishes.
The Sunday Telegraph has learnt that the Canada Pension Plan Investment Board (CPPIB), a major infrastructure investor, is in talks aimed at putting its one-third stake in Anglian Water, acquired for £2.3bn in 2006, beyond the reach of a potential Labour government. City sources said CPPIB, one of the world’s biggest pension funds, is in talks to transfer its Anglian shares to a holding company based in Hong Kong.
The work is under way amid Brexit related chaos in Westminster that it is feared could trigger a General Election that may open the door to a radical leftwing government.
Kallum Pickering, of Berenberg Bank, said that the UK “could be trading one risk for another” as the chances of a hard Brexit have fallen, but that of a Labour electoral win had risen. There is now a 30pc probability of Corbyn-led Government, he said.
The bilateral treaty between Britain and China that governed the handover of Hong Kong in 1997 provided protection against expropriation of assets by the state. The agreement was designed to encourage UK companies to continue to invest in the territory under the control of Beijing and the Communist Party, but its shelter is now being sought by foreign investors in Britain.
Jeremy Corbyn and the shadow chancellor, John Mcdonnell, plan to target the water industry first in a wave of renationalisations if they gain power. Labour has sharply criticised utility company failures on pollution and generous dividends to shareholders.
About half of Britain’s water companies are owned by foreign infrastructure investors, who fear their assets could be stripped from them at knockdown rates under Labour.
The plans to bring water companies back into public control could cost the UK taxpayer about £90bn, according to estimates, and also threatens to wipe billions from infrastructure fund investments if Labour “underpays” for the companies.
The party is expected to pay the “book value” for each water company, which overlooks the value of the utilities’ regulated assets.
In the case of Severn Trent and United Utilities the difference could be about £2.1bn and £2.5bn respectively, according to analysts at Bernstein. Investors will have the best chance at reclaiming the full value of their investments if their assets are based offshore, according to law firm Clifford Chance.
The legal giant said earlier this year that “nationalisation for less than full market value will, almost inevitably, trigger compensation claims by investors. The investors likely to have the best chance of launching a successful claim are those based in a jurisdiction that is party to an investment treaty with the UK, including, for example, China, Hong Kong and Singapore.”
The move is likely to raise hackles among water bosses who are hoping to clean up the reputation of the industry, once accused of allowing owners to drain the utilities of dividends while avoiding paying tax. Steve Robertson, the chief executive of Thames Water, said he has not discussed any changes with his company’s owners.
Thames is part-owned by Omers, another Canadian pension fund, which denies any plans to offshore its investment.
“I’m not sure how that would be received. For example, we’ve gone through a lengthy process to shut our Cayman Islands subsidiary – and the direction of travel, strategically, is something that has been welcomed. This wouldn’t be something consistent with that,” Mr Robertson said.
A Labour Party spokesman said: “Public ownership of rail, water and energy is massively popular because people are fed up with fat cat bosses running down services and hiking up prices and dividends for shareholders.”
Shadow chancellor John Mcdonnell, left, and party leader Jeremy Corbyn will target the water industry