Outlook: One bite too far for Nomura

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The Independent Online
It looks as if Nomura Securities and its high-earning head of principal finance, Guy Hands, have finally tried to bite off more than they are capable of chewing. Last night they were blaming price for their withdrawal from the bidding for Energy Group, but the reasons must have been regulatory in equal measure. Anything tabled by Nomura looked certain to end up before the Monopolies and Mergers Commission. Nomura would have needed to bid very high indeed to persuade investors to await the uncertain outcome of such an investigation while PacifiCorp's pounds 4bn alternative offer is already there for the taking.

Nomura's shopping list in the UK has so far included a 5,500 strong chain of pubs, 57,000 Ministry of Defence homes, a train leasing company and the William Hill betting shops chain. In each case the assets have been paid for by "securitising" the income stream in the form of bonds, which are then sold to Nomura clients. This sounds like an impressive piece of rocket science but in fact the underlying concept is both simple and probably suspect.

In essence Normura makes the companies pay for themselves by issuing bonds (debt by any other name) against the security of the assets and the income they produce. Equity is replaced with debt and in the process Nomura earns a whacking great commission, some of which goes to paying the reputed pounds 40m per annum salary of Mr Hands. In the roaring 1980s this used to be called a highly leveraged buyout, and perhaps unsurprisingly, many of these things came to grief. In the sophisticated 90s, we have a more refined and less offensive way of describing it - securitisation. But it's the same thing.

So far this hasn't really mattered. It is hard to see on the sort of assets bought by Nomura up until now how anyone other than Nomura and its clients would be much harmed if it failed to work out. But Energy Group, which owns Eastern Electricity, one of the largest of the 12 regional electricity companies, is another matter.

Anything likely to be tabled by Nomura would not have amounted to a conventional change of ownership. However it was dressed up, inevitably it would have been a glorious piece of financial engineering designed essentially for the greater enrichment of Nomura and its Mr Hands. The Government was never likely to allow a public utility to be asset stripped in this way. Even the ingenuity of Mr Hands was going to struggle to find a way round this obstacle. It may well be that this high-profile failure will come to mark the high tide of his ambition.