The United Kingdom’s fifth-largest water company announced last week that it will be closing its Cayman Islands–based subsidiaries due to issues of “public concern.”
Yorkshire Water’s Cayman subsidiaries – Yorkshire Water Services Bradford Finance Ltd., Yorkshire Water Services Odsal Finance Ltd., and Yorkshire Services Odsal Finance Holdings – were created in 2009 to issue corporate bonds.
Yorkshire stated in its March 31 annual report that the Cayman entities were created “due to technical reasons” that are no longer applicable, but that the company would likely keep them active because unwinding the corporate structure “would incur substantial cost for minimal benefit.”
However, Yorkshire Water Director of Finance Liz Barber stated last week that the Cayman entities would be removed as soon as possible, suggesting that they could pose a reputational risk to the utility.
“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,” she said in a press release. “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.”
Yorkshire’s announcement follows an article in August from the Daily Mail’s business publication, This is Money, that another U.K. water company could also be closing its Cayman-based subsidiaries for reputational reasons.
However, the company, Thames Water Utilities Ltd., disputed the article, telling the Cayman Compass that the report was “highly premature.”
“We haven’t turned our back on the Cayman; we have a couple registered entities there,” Thames public relations consultant Sundeep Tucker said at the time, explaining that the company is reconsidering its corporate structure as a part of an overall review by its new CEO. “They may open more [entities] in the Caymans or they may close it down.”
Like Yorkshire’s Cayman entities, the Thames subsidiaries – Thames Water Utilities Cayman Finance Ltd. and Thames Water Utilities Cayman Finance Holdings – were also created to issue bonds.
According to a company publication explaining Thames’ corporate structure, the Cayman entities were created in 2007 due to U.K. regulations that were in place at the time.
“In 2007, it was not possible for a U.K. company to issue public bonds to repay debt provided by investors to help finance its acquisition,” the publication states. “These restrictions have now largely been amended or removed.”
The publication added that the Cayman subsidiaries are registered here for legal reasons, but are resident in the U.K. for tax purposes.
“This means that they are subject to tax in the U.K.,” Thames states. “There is no tax benefit associated with the companies being registered in the Cayman Islands and the companies operate and are managed wholly from our U.K. office.”
Mr. Tucker told the Compass in August that it could take more than a year before Thames decides whether to shutter its Cayman subsidiaries.