As long as the shareholders don't suffer.

[stowie]

Interesting, but, unless Thames Water is the only asset held by Macquarie, not very informative.

I am not supporting Macquarie, merely making the point that milking dividends (a frequent claim) to the extent to put Thames Water in it's current sorry state, would appear, to me, to have consequences for the share price (event if that company is not publicly listed). I did say I was not a financial expert, I was requesting if someone who was a Financial Expert (I mean real, not self appointed) could explain why my "Total Return" view was unsound.

How Macquarie bank left Thames Water with extra £2bn debt (BBC)

I think this article may answer your questions around why Macquarie have been accused of "milking dividends".

It is a fact that Macquarie obtained a £2bn loan against Thames Water assets which was used - in the words of the BBC article - for the benefit of the bank and its investors. The bank in question being Macquarie. It is believed this was in contravention of rules laid down during the acquisition by Macquarie. If true it shows that regulatory oversight by OFWAT was - in my opinion - terrible and without any consequence.

The whole privatisation / nationalisation argument is really a little bit of a side-show. A nationalised Thames Water will be a monopoly as is the privatised one. I cannot change my water supplier from Thames Water and neither can I elect to stop using water (although digging a well may be an option?!). Either a privatised or nationalised entity without proper, independent regulatory oversight with teeth runs the risk of mismanagement.

There are two big considerations with water provision. It will always be a monopoly in whichever realm so is it possible to successfully regulate and manage it in whatever form is chosen? The second consideration is whether water should be considered a part of national security infrastructure and therefore one of the special cases where government control is necessary? This is not an unusual scenario. We don't privatise our army for purposes of efficiency. Or the emergency services. This is obviously a matter of politics and view point, but food and water security is usually considered a primary function of government. This doesn't mean nationalisation is required, just that there could be a justification for it if a private arrangement is found to be wanting and jeopardising the welfare of the citizens.

In reality the argument is somewhat moot at the sharp end. Government will pick up part of the Thames Water tab and our taxes (or debt repayments) and the captured "consumer" will pick up another part. In the meantime Macquarie made around £1bn on ownership from Thames Water in the capital appreciation (what they bought and sold it for) alone - money that will not be used to invest either in Thames Water or even the UK government but rather realised by the investors in Macquarie which appear to be very large investment firms such as Black Rock and of course the executive of the bank. None of this is necessarily a bad thing if Thames Water emerged from their ownership a stronger, more stable entity. I would argue neither is true but that Thames Water's decline began in that era and has got steadily worse.

 

[BoldonLad]

How Macquarie bank left Thames Water with extra £2bn debt (BBC)

I think this article may answer your questions around why Macquarie have been accused of "milking dividends".

It is a fact that Macquarie obtained a £2bn loan against Thames Water assets which was used - in the words of the BBC article - for the benefit of the bank and its investors. The bank in question being Macquarie. It is believed this was in contravention of rules laid down during the acquisition by Macquarie. If true it shows that regulatory oversight by OFWAT was - in my opinion - terrible and without any consequence.

The whole privatisation / nationalisation argument is really a little bit of a side-show. A nationalised Thames Water will be a monopoly as is the privatised one. I cannot change my water supplier from Thames Water and neither can I elect to stop using water (although digging a well may be an option?!). Either a privatised or nationalised entity without proper, independent regulatory oversight with teeth runs the risk of mismanagement.

There are two big considerations with water provision. It will always be a monopoly in whichever realm so is it possible to successfully regulate and manage it in whatever form is chosen? The second consideration is whether water should be considered a part of national security infrastructure and therefore one of the special cases where government control is necessary? This is not an unusual scenario. We don't privatise our army for purposes of efficiency. Or the emergency services. This is obviously a matter of politics and view point, but food and water security is usually considered a primary function of government. This doesn't mean nationalisation is required, just that there could be a justification for it if a private arrangement is found to be wanting and jeopardising the welfare of the citizens.

In reality the argument is somewhat moot at the sharp end. Government will pick up part of the Thames Water tab and our taxes (or debt repayments) and the captured "consumer" will pick up another part. In the meantime Macquarie made around £1bn on ownership from Thames Water in the capital appreciation (what they bought and sold it for) alone - money that will not be used to invest either in Thames Water or even the UK government but rather realised by the investors in Macquarie which appear to be very large investment firms such as Black Rock and of course the executive of the bank. None of this is necessarily a bad thing if Thames Water emerged from their ownership a stronger, more stable entity. I would argue neither is true but that Thames Water's decline began in that era and has got steadily worse.

The article does not explain what happened to the share price, during the period of "milking".

I am not supporting Macquarie's actions.

I agree with what you say. about the monopoly, I have already made the point elsewhere that a "water grid" (and possibly a "sewerage grid") would be needed to effect any form of "competition"

I am asking if total return (ie Share price at beginning of "milking" minus share price at end of "milking", plus dividends earned in that same period, is a positive number, and, if it is, then, what %ge of the original share price.

 

[Stevo 666]

I am asking if total return (ie Share price at beginning of "milking" minus share price at end of "milking", plus dividends earned in that same period, is a positive number, and, if it is, then, what %ge of the original share price.

May be a bit hard to do the sums on that without investing a lot of time, but your thought process is right. Paying dividends generally reduces the value of a company, especially ones where balance sheet based valuations prevail.

 

[Psamathe]

May be a bit hard to do the sums on that without investing a lot of time, but your thought process is right. Paying dividends generally reduces the value of a company, especially ones where balance sheet based valuations prevail.

It can be weird but something I learnt in my career is companies can and do declare dividends even when making a loss if there is reasonable justification. First time I thought well wrong but company have been spending large amounts of R&D for a new product, tooling costs, etc. which was due for launch before much longer so prospects were good and losses did not reflect the state of the company. Similarly we did it on more than one occasion where we declared a dividend but never actually took the dividend (I was technical so focused on other aspects but assume it then became treated as a loan to the company or something) but all completely above board.

That said I don't see such things as relevant to Thames Water as indicators were bad, no grounds for expecting any imminent improvement, etc.

 

[Stevo 666]

It can be weird but something I learnt in my career is companies can and do declare dividends even when making a loss if there is reasonable justification. First time I thought well wrong but company have been spending large amounts of R&D for a new product, tooling costs, etc. which was due for launch before much longer so prospects were good and losses did not reflect the state of the company. Similarly we did it on more than one occasion where we declared a dividend but never actually took the dividend (I was technical so focused on other aspects but assume it then became treated as a loan to the company or something) but all completely above board.

That said I don't see such things as relevant to Thames Water as indicators were bad, no grounds for expecting any imminent improvement, etc.

Companies can and do that - for example even if making a loss currently, they could have a substantial balance sheet with accumulated retained earnings from previous years which might mean that it is OK. But clearly that won't always be the case. Also as you say, if a company has investment plans it may choose not to distribute as it needs the cash. As ever, it's horses for courses.

 

[dutchguylivingintheuk]

While it sounds like there is a case for more controls on this particular water company, does it mean all water companies should be under public control?

Right? I told you the privated part of the dutch water companies are the same shitshow, and i doubt it will be very different across europe.(and by the way, in the UK it isn't only thames water either) It an sector that needs cash reservers, but has an quite boring and relative low income stream, private funds/companies get in pile up debt and leave the taxpayers with the bill.
Not my opinion but the only sad conclusion the numbers show both in the Netherlands as here in the uk.

People seem to using the worst example as 'proof' that the current model is worse that nationalisation. Some people here will be old enough to remeber what a sh!t show it was with nationalised industries in the UK.

i'm not talking about nationalizing industries, but water companies in particular, or let me word it slightly different, i believe the only soluttion to stop companies from buying up dumping all debts into these kind of companies and then charge the taxpayer, either directly by delivering higher bills or indirectly by letting the goverment take the debts.
As the water companies going bust would be a problem.

As mentioned before, a public monopoly is not necessarily better than a private monopoly (on a regional basis). See come of my points in my reply to Psamathe above.

As I see it the problems can be addressed without state ownership.

Yes but then you make regulations that defacto make it a public monopoly, regulation cost time and money and still it doesn't adress ownership of certain companies from countries that we not really want to be on control of vital infrastructure.

 

[BoldonLad]

Right? I told you the privated part of the dutch water companies are the same shitshow, and i doubt it will be very different across europe.(and by the way, in the UK it isn't only thames water either) It an sector that needs cash reservers, but has an quite boring and relative low income stream, private funds/companies get in pile up debt and leave the taxpayers with the bill.
Not my opinion but the only sad conclusion the numbers show both in the Netherlands as here in the uk.

i'm not talking about nationalizing industries, but water companies in particular, or let me word it slightly different, i believe the only soluttion to stop companies from buying up dumping all debts into these kind of companies and then charge the taxpayer, either directly by delivering higher bills or indirectly by letting the goverment take the debts.
As the water companies going bust would be a problem.

Yes but then you make regulations that defacto make it a public monopoly, regulation cost time and money and still it doesn't adress ownership of certain companies from countries that we not really want to be on control of vital infrastructure.

Not arguing for or against Nationalisation, but, if a (sensible) Government was going to Nationalise, or, otherwise take control of a Water Company, (indeed any Company) wouldn't the sensible option be to wait until it went bust, then, buy it from the administrator, minus debts of course?, ie, otherwise known as playing the game to your advantage, or, being a greedy, unprincipled capitalist. 😂

 

[Psamathe]

Not arguing for or against Nationalisation, but, if a (sensible) Government was going to Nationalise, or, otherwise take control of a Water Company, (indeed any Company) wouldn't the sensible option be to wait until it went bust, then, buy it from the administrator, minus debts of course?, ie, otherwise known as playing the game to your advantage, or, being a greedy, unprincipled capitalist. 😂

It effectively is. Trouble is our Government keeps accepting Thames Water's valuation of Thames Water despite many economists and business people saying that valuation is daft ... but it protects the investors at the public cost. But that's our Government for you.