The Grand Court has approved a United Kingdom water company’s petition to remove its holding company from the Cayman Islands – a petition made in response to criticism from U.K. regulatory authorities about the country’s water companies using “opaque financial structures.”
Anglian Water, which operates in eastern England, filed a petition in the Grand Court on April 9 to reduce the capital in its Cayman subsidiary from $348,000,000 (£300,000,000) to $1.16 (£1), 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. “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. Anglian’s statement likely is in reference to open correspondence between U.K. Environment Secretary Michael Gove and Jonson Cox, the chairman of the U.K. Water Services Regulation Authority.
In January, Mr. Gove wrote an open letter to Mr. Cox, asking him to investigate the issue of water companies having “opaque” financial structures.
“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. “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” U.K. water companies have pledged to remove their Cayman-registered entities. Indeed, Anglian – which had its petition accepted by the Grand Court last week – is one of at least four U.K. water companies that are pulling out of Cayman due to negative publicity and regulatory pressure. Thames Water, Yorkshire Water and Southern Water have also announced their intention to close their Cayman subsidiaries.
The water companies set up shop here in the mid-2000s to conduct activities such as issuing bonds, and to work around 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,” states Thames Water in a publication that explains the company’s corporate structure. “These restrictions have now largely been amended or removed.”
The water companies have explained that their subsidiaries were established for legitimate purposes, but that negative perceptions about offshore financial jurisdictions have made their continued use untenable.
“Southern Water and all Southern Water group companies pay taxes in the U.K. and have never offshored their tax obligations,” stated Southern Water in April. “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.”