United to split £800m assets for auctions

Utilities company to divide unregulated sections of its business to make it easier to find bidders
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United Utilities, the Ftse 100 water company, is set to divide the £800m sale of unregulated assets into at least two auctions. Broker JP Morgan Cazenove, which has been assessing options for United businesses not regulated by Ofwat over the summer, is expected to present its recommendations to the board later this month. The assets include outsourcing contracts in the UK and overseas.

A senior utilities banker said: "They are leaning towards splitting the business into two, overseas and domestic sales processes, to ensure that United gets full value."

A second City source said that the other options are to sell the non-regulated activities in one portfolio, or even splitting the business into "four buckets". The latter proposal would see overseas assets divided into European and international portfolios, while UK water and waste water assets would be auctioned beside gas and electricity contracts.

United's chief executive, Philip Green, has been returning cash to shareholders through asset sales for the past few years. In 2007, he sold electricity distribution assets to North West Electricity Networks.

Industry sources said only a few strong contenders for the overall portfolio had emerged since the possibility of a sale was revealed in July. However, private equity outfits are understood to have been keeping a close watch, and are thought to be more likely to bid for the business if it is split up into chunks.

United is due to announce its half-year results on 25 November. In a trading statement last month, it said that it expected "a marginal increase in underlying operating profit".

United operates water, waste water, electricity, and gas in the North-west of the UK. The utility is valued at more than £3bn, though its share price fell 1.63 per cent to 445.6p on Friday.

A United spokesman said: "We do not comment on market speculation."

Meanwhile, International Power is understood to be considering a short-term refinancing of a A$445m debt in Australia, because of the country's uncertain environmental regulations.

The FTSE 100 company has until February to refinance the loan it has with 19 banks on its stake in the Hazelwood power plant in Victoria state. Typically, a power company would take up a replacement loan of similar length, about five-to-seven years.

However, banks could be more comfortable with shorter loans while waiting on government changes to carbon emission targets. The Australian government is expected to clarify its reduction policy by the end of November, though it might not be detailed enough to convince banks to back longer loans.

Hazelwood produces power from what is known as "brown coal", which is relatively high in carbon emissions, though common in Australia.

The company's net debt was £5.4bn as of 30 June, down from £4.9bn at 31 December last year. Its share price was 280.8p on Friday, down 1.26 per cent on start of trading. A spokeswoman declined to comment.