As pressure mounts in the United Kingdom over the use of “opaque financial structures,” two more United Kingdom water companies have announced that they intend to close their Cayman-registered subsidiaries.
Earlier this month, Southern Water stated that it has been working to close its subsidiary finance company in Cayman since late 2017.
“Southern Water and all Southern Water group companies pay taxes in the U.K. and have never offshored their tax obligations,” stated Southern Water, which provides water and wastewater treatment services across Kent, Sussex, Hampshire and the Isle of Wight. “However, we know that our subsidiary financing company in the Cayman Islands contributes to misconceptions about our business practices and this is why we are working towards closure by the year end.”
Likewise, Anglian Water filed a petition in the Grand Court on April 9 to reduce the capital in its Cayman subsidiary from £300,000,000 (CI$348,000,000) to £1 (CI$1.16), with the goal of removing the subsidiary from its corporate structure.
“[The U.K. Water Services Regulation Authority] and the U.K. Government have expressed a strong desire for the Anglian Water Group to remove this Cayman Islands-incorporated company from its corporate structure as soon as possible (the company being the only Cayman Islands incorporated company in the Anglian Water Group),” Anglian states in its Grand Court petition, which is posted on the financial services site OffshoreAlert. “The transaction is intended to effect that removal.”
Anglian, which operates in eastern England, explains in its petition that the U.K. regulator and government have made “certain comments” on the complexity of the corporate structures built by the country’s water companies, referencing a letter written by Environment Secretary Michael Gove in January to the regulator’s chairman, Jonson Cox.
“The water sector has rightly come under even closer scrutiny in recent months with growing concern about the behaviour of water companies,” Mr. Gove stated in the letter, asking the regulator to investigate the issue. “The use by some water companies of opaque financial structures based in tax havens and high gearing is deeply concerning.”
Mr. Cox responded on behalf of the regulator earlier this month, telling Mr. Gove that “most” of the U.K. water companies have pledged to remove their Cayman-registered entities.
This follows an announcement from Yorkshire Water last October that the company would close three of its Cayman-registered subsidiaries.
Yorkshire Water Director of Finance Liz Barber stated in October 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,” stated Yorkshire, the country’s fifth-largest water provider. “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.”
A month later, Thames Water Utilities also announced that it will soon close its two Cayman-based subsidiaries.
After Thames issued roughly CI$162,500,000 in bonds through a Cayman entity in December, the company clarified that it would close its Cayman entities around July of this year.