Yorkshire to deleverage and remove offshore banking arrangements

Legitimacy debate

Yorkshire Water’s group director of finance, regulation and markets Liz Barber announced a package of financial reforms at Moody’s water sector conference last week. These included:

• Further deleveraging – The company has already reduced its gearing from 76% of total asset value and this is set to fall to around 70 per cent by 2020.

• Removal of offshore banking arrangements – Barber said of Yorkshire Water’s offshore arrangements in the Cayman Islands: “There is a real challenge to the water industry’s legitimacy at the moment and complex financial structures only add to public concern as to the way in which companies are financed. We have some offshore companies in our structure which are no longer necessary or appropriate and we’re taking steps to remove these as soon as possible.”

• Possible issue of a social bond – Barber praised Anglian Water’s green bond issue, and added that Yorkshire Water could become the first in its sector to raise funds through a social bond.

This would enable ethical investors to directly finance some of the company’s plans for the next five years – for example, plans to use natural flood management techniques to reduce flood risk for customers in Hull, Calderdale and the Aire Valley.

The moves likely come in response to political and media criticism of the sector in general and highly leveraged companies in particular. Barber noted the wider benefits too, including reduced borrowing costs, more money to invest in service enhancements for customers, and greater flexibility. She noted: “Customers expect us to provide safe and reliable services and we have a responsibility to have safe and resilient finances so that we meet their expectations. They want to know that we have the flexibility to cope with unplanned events like the last major floods in Yorkshire in 2015. By reducing our borrowing costs we’re better able to cope with this type of event, which on its own cost some £57m.”