Renationisation Worries?

[tlf67482]

I am becoming increasing concerned that a large part of my portfolio is Utility Based (e.g. Electricity, Water, Gas and Phone) - would a Labour government just offer 10p a share and "screw" shareholders?

If anyone can comment on how they would come to a share price figure to buy us out that would be useful to ease the pain but I guess the government would make the rules so it can be as unfair as they like?

Share prices have already plummeted in these sectors so if they went ahead god knows what the lowest price would be!

I am already showing loses in all utility sectors so should I get rid before they get worse or at least reduce exposure?
How would you go about reducing exposure?

Thanks

[scrumpyjack]

They would have an obvious incentive to pay as little as possible. One way would be to introduce much much tougher regulatory price regimes.
Utilities profits would fall sharply. Their share prices would follow and so cost much less to nationalise.

In the US the regulatory price regime for electricity companies has at times forced them into being loss making. If taht can happen in the US imagine what could happen here under a hard labour regime.

I have no holdings in utility companies as the prospect of a Labour government makes them far too risky for me.

[PinkDalek]

Here’s a 4 page thread from two weeks ago at HYP - Practical:

viewtopic.php?f=15&t=10043&hilit=Nationalisation

[johnhemming]

In theory property law requires paying a market price for assets compulsorily purchased. This is part of various international treaties such as the EU and ECHR (A1P1). It doesn't always work, however (see ILP) and we are leaving the EU.

[BreakoutBoy1]

I hope that the current worries prove unfounded: If so we are being presented with an interesting investment opportunity. Utility company prices in UK are severely depressed, and they are on low valuation multiples.

Looking at the huge cashpile Berkshire Hathaway has to deploy, their longterm liabilities, and their growing energy and utility business, I wonder if there might be a fit?

It will be hard for Corbyn to monster Buffet as an evil capitalist, given his vast philanthropy and folksy style.

[Lootman]

how they would come to a share price figure to buy us out that would be useful to ease the pain but I guess the government would make the rules so it can be as unfair as they like?

McDonnell said a few months ago that "Parliament would decide on the price".

That's rather disturbing on the face of it although, as others have said, the government could pass regulations that drive down the price to what they want to pay anyway, as unethical and corrupt as that is.

The real issue is that these shares will lose a lot of their value at the point where a Labour government looks likely. By the time we get there, if you haven't sold, it will be too late.

[Dod101]

And the dilemma is that in the meantime most utilities are still delivering decent dividends, more than can be said for many shares. I have only a modest exposure to SSE and National Grid so we'll see.

Dod

[BreakoutBoy1]

I have been buying NG and SSE since the autumn. I am well underwater, but can't help
thinking that long term they may come good if Conservative government continues. It is apolitical gamble. I remain sanguine about the underlying businesses, as electricity demand is not going to diminish in the foreseeable future.

[johnhemming]

McDonnell said a few months ago that "Parliament would decide on the price".

That's rather disturbing on the face of it although, as others have said, the government could pass regulations that drive down the price to what they want to pay anyway, as unethical and corrupt as that is.

The real issue is that these shares will lose a lot of their value at the point where a Labour government looks likely. By the time we get there, if you haven't sold, it will be too late.

This in part is why Corbyn and McDonnell want to leave the EU. Although the ECHR does have property protections, those of the various EU treaties are stronger not least because they can be enforced in a timely manner. Under UK Law if a price is set in primary legislation by parliament then that is it and there is no independent assessment. That cannot be challenged by the courts. A statutory instrument could be challenged by the courts.

If energy prices are high and the profits are high then setting a low price would be a popular move. Hence in the mean time you would expect a relatively high yield simply because of the sovereign risk.

[TUK020]

National Grid has significant US assets (Mohawk power?). It will therefore have multiple legal entities.
It also has significant debt. Any ideas on which of these entities carries the debt?
I suspect that the UK Government would face challenges if it tried to 'nationalise' foreign assets - particularly ones that it will be describing as critical national infrastructure. It therefore would be nationalising one or more of the subsidiaries of NG, rather than the whole company.
It would be interesting to see how NG structure their poison pills.

I suspect the retail power suppliers would be a much easier target for a Corbyn government (internal scream at the concept) to meddle in the fuel bills that people see land on their doormats. Retail bills are the political brownie points that they would be after.

SSE is involved in multiple parts of the Electricity supply chain: Generation, Scottish grid, Regional Distribution, and Retail supply. It is instructive that it is the latter that they are disengaging from

[TUK020]

On a wider scale, folks like cheap electrical power, but not at the expense of it being unreliable.
If all investment into the power industry grinds to a halt, then I wonder what the political reaction would be by the time of the second widespread power cut that can be portrayed as lack of investment, rather than lightning/act of god etc.
I actually start giggling when I try to imagine what the Daily Mail headlines would be......

[BreakoutBoy1]

Moderator Message:
Edited, does not fit in with TLF "rules". This is not the first time, I have edited/deleted this type of post text. If it continues will pass on to the board Admin for review. Raptor.

On the plus side, at least if expropriation occurs I will have had the obvious stimulus I need to sell out and move all assets out of the UK. Plenty of places elsewhere that respect property rights, even if Corbyn won't.

[Lootman]

TOn the plus side, at least if expropriation occurs I will have had the obvious stimulus I need to sell out and move all assets out of the UK. Plenty of places elsewhere that respect property rights, even if Corbyn won't.

Agree 100%. However you'd really need to do that before Corbyn becomes PM. Because his very first act might be to implement exchange controls. They've done background work on that already.

We may get as little as 3 weeks notice of a GE. Can you sell your shares, house, ISA and get yourself, your family and your assets out of the UK in that time?

[gryffron]

But it doesn't need to take over the companies. As others have pointed out, a large international company with a relatively small UK distribution division (EDF/EON) would be quite hard to nationalise in this manner.

Much easier to regulate maximum prices or unachievable employment rights (Guaranteed final salary pensions?) that effectively drive them all out of the UK marketplace, leaving only a state monopoly as last-man-standing. Currently banned by EU rules. But might not be when/if Corbyn comes to power.

The govt takeover of RBS and the East Coast Mainline franchise happened in similar manner when the private companies running them effectively failed. And the govt were hailed as saviours - at negligible buyout cost.

If all investment into the power industry grinds to a halt, then I wonder what the political reaction would be by the time of the second widespread power cut that can be portrayed as lack of investment, rather than lightning/act of god etc.

Of course. But the socialist mantra is "private bad, public good". They would argue a state energy sector would have better capacity planning than private provision. And, certainly for utilities, (though perhaps not the railways) history might actually support them on this.

Gryff

[tlf67482]

Thanks everyone for replies very interesting reading.

Not really sure if it help me to make the decision on whether I should sell or not though I have my coin ready but my gut is becoming increasingly unhappy with the risk.

I have 19 sectors with renationalisation worry shares in 3 of these sectors (2 if excluding BT). They are all now at my sector average investment amount with recent losses so at least I am not over exposed from this point of view but still a big chunk of cash though.

Is there a list of shares that are likely targets with a risk factor compared to other shares on the list?

Thanks

[BreakoutBoy1]

TOn the plus side, at least if expropriation occurs I will have had the obvious stimulus I need to sell out and move all assets out of the UK. Plenty of places elsewhere that respect property rights, even if Corbyn won't.

Agree 100%. However you'd really need to do that before Corbyn becomes PM. Because his very first act might be to implement exchange controls. They've done background work on that already.

We may get as little as 3 weeks notice of a GE. Can you sell your shares, house, ISA and get yourself, your family and your assets out of the UK in that time?

In short, yes, to a significant degree. I am already living and working overseas for significant periods and could sell out and have all liquid assets out of U.K. and transferred into my account here in about a week. That still leaves my BTL properties and some legacy pension pots stuck in Blighty to get plundered, but at least 50% of my net worth could offshore that rapidly. The BTLs are a major U.K. tie, and would take about 6months to vacate and sell. I would then have the option to become resident for tax outside U.K. which could be worth pursuing depending on developments.

[Lootman]

The BTLs are a major U.K. tie, and would take about 6months to vacate and sell. I would then have the option to become resident for tax outside U.K. which could be worth pursuing depending on developments.

One idea there would be to remortgage the BTL's so that there is a minimum of equity in them. If Corbyn then decided to tax the heck out of them, you could just walk away and post the keys to Number Ten with a sweet greetings card.

Likewise, loading up on UK debt is a way to net your UK exposure down to zero even if there are assets that can't be moved, like pensions. Basically build your own personal onshore poison pill.

[Dod101]

ButThe govt takeover of RBS and the East Coast Mainline franchise happened in similar manner when the private companies running them effectively failed. And the govt were hailed as saviours - at negligible buyout cost.

I do not understand these comments in the context of nationalisation. In the case of RBS, had the Government not stepped in it would have gone bust (as a forerunner to Carillion) In that case the govt was the saviour, literally and in many other senses. As for East Coast Mainline, it clearly had no value otherwise GNER would have kept it, and incidentally East Coast when it was under public ownership did a better job than Virgin does today.

I am totally anti Corbyn and all he stands for but I must say there are times when some form of govt intervention can be necessary.

Dod

[gryffron]

I do not understand these comments in the context of nationalisation. In the case of RBS, had the Government not stepped in it would have gone bust...

If you want to nationalise something, make it fail first. Then you can buy it a snip/nothing. It is easily within the power of government to cause most companies trading in the UK to fail. And much, MUCH cheaper than trying to buyout a profitable company.

Remember, when labour nationalised steel, shipbuilding, coalmines, railways etc in the 40s , they were all making horrendous losses. So the govt paid nothing for them.

The question was "how do you decide the price?". Well the price depends on the profits, and govt can easily interfere with profits.

Gryff

[Dod101]

Yes of course Gryff, but surely you are not suggesting that the Labour Government of the day was unduly influencing Fred when he behaved like an all conquering megalomaniac in 2007/8? I am sorry but I do not see the relevance of either RBS or East Coast in this discussion. Private enterprise all by itself managed to drive these into the ground.

Dod