Ownership Utility Regulation and Financial Structures: an Emerging Model

Recent corporate activity and the emergence of highly geared companies in the utility and infrastructure sectors have raised fundamental questions about risk, returns and the appropriate responses from investors and regulators. A gradual revolution has been taking place in the ownership and financing of utilities and infrastructure, moving away from the pure equity model of the 1980s and 1990s towards higher gearing, with pension and life funds becoming either de facto or de jure the new owners. These changes are rational responses by financial institutions to the shift from asset sweating to the new more investment-focused context, and because the early efficiency gains have been exhausted. However, not all the changes have been good, and there remains muddle and confusion about the roles of equity and debt, and the appropriate regulatory frameworks going forward. As with many such revolutions, mistakes get made by both investors and regulators.

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