Beware of cross-border currents
Telecoms companies mired in debt are a salutary example of what can happen when steady unexciting service providers try to take on more dynamic roles. European utilities would be hard-pressed to spend anything like as much on expansion as telecoms did on G3 mobile licences, yet some of their plans are sending jitters through the markets.
Debt and equity investors have grown up with the notion that utilities are an ideal haven for cash in a crisis. The strategy won't necessarily make you rich, but it's unlikely to make you poorer because, the argument runs, you can always depend on a utility to generate dependable if unexciting returns.
It's time for a new disaster plan. "The concept of utilities as strong companies with a secure credit profile is rapidly disappearing," says Paul Lund, associate director at credit-rating agency Standard&Poor's. Investors who buy utility shares or bonds today should not expect stability, he argues.
The number of cross-border acquisitions, joint ventures and asset disposals in the utilities sector has risen rapidly in the past six months. Investment bankers see plentiful opportunities in Europe. "It's a very active sector and we think this will continue," says Glen Suarez, head of the European utilities group at Morgan Stanley.