Ofwat seeks to lock investment grade ratings into Portsmouth licence

Ofwat is consulting on changes it proposes to make to Portsmouth Water’s licence, following the company’s purchase by Ancala Partners in March 2018.

The modifications concern: consolidating and updating ring fencing conditions; corporate governance; ultimate controller legal undertakings; change of control notification to Ofwat; and credit ratings.

On the latter, Ofwat said: “To bring Portsmouth Water’s licence to the current highest standard we propose a change to the licence condition to require the appointee to ensure that it has an investment grade credit rating, as opposed to asking for the appointee to use ‘all reasonable endeavours’ to ‘ensure’ it has an investment grade credit rating.” The regulator also proposed a cash lock up provision should the company’s rating be at risk, to prevent it paying dividends or making payments to associated companies.

Ofwat reported Portsmouth Water generally agrees with the principles of the modifications but has raised a concern about the change from ‘reasonable endeavours’ to ‘must ensure’ that it has an investment grade credit rating. Ofwat countered: “We want all companies to adopt the highest current standard as we consider that regulated entities should maintain at least a minimum investment grade rating. We consider this provides a clear requirement on the appointee and protects customers by providing a clearer obligation on companies to take all precautions and actively ensure investment grade ratings are maintained.”

The conditions outlined for Portsmouth are consistent with the enhanced conditions Ofwat proposed on 11 May 2018 in its Change of control - general policy and its application to Thames Water document.