Veolia sells UK water unit to Rift for £1.2bn

City A.M. Reporter
FRENCH utility Veolia Environnement has sold a majority stake in its regulated UK water business for £1.24bn including debt, notching a milestone in its overhaul aimed at returning to profitability and cutting debt.

It is the first significant divestment since chairman and chief executive Antoine Frerot announced a reorganisation in December to cut debt that had piled up under an acquisition spree by Veolia’s founder and head Henri Proglio.

The sale will shave €1.45bn off the €14.7bn debt Veolia had at the end of last year and help it to meet its goal to cut debt to below €12bn by the end of 2013 by selling assets worth €5bn. Analysts said that the price Veolia will receive for the unit, which is widely seen as the most attractive it has put up for sale, beat expectations and the strength of the pound against the euro had helped prop up the deal’s value in euros.

“In the current context, regulated assets are very coveted, they are very defensive and not exposed to economic growth,” said Exane BNP Paribas analyst Yohann Terry. Shares in the waste, water and energy group have lost 46 per cent of their value in the last 12 months.

“The timing and the exit price exceeded our expectations by a couple of months and by about €150m respectively,” Citibank’s head of utilities research Sofia Savvantidou wrote in a research note.

Under the agreement with the asset’s buyer, Rift Acquisitions, Veolia will keep a 10 per cent stake in the regulated water business for at least five years.

It will also keep its non-regulated water business, Veolia said in a statement. Rift is a joint venture of a Prudential managed infrastructure investment fund and Morgan Stanley Infrastructure partners.