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Sounds like good "modern" governance. You've got assets? Use them as collateral to take on debt so you can free up capital and give it back to the shareholders.

Sounds like good "modern" governance. You've got assets? Use them as collateral to take on debt so you can free up capital and give it back to the shareholders. Value!

lotsofpulp 3y ago
That is inevitable with super low interest rates for a super long time, especially near zero. Your options are to acquire appreciating assets quicker than your competitor, or you get left behind. See people who bought homes at 5% down versus people who waited to have 20% down. The people who took on more debt were rewarded nicely with huge gains, and the people, who were prudent, now decide on paying a few hundred thousand more, if they were even able to keep up with saving a larger down payment.
- etrautmann 3y ago
  This is highly specific to the period of time with rapidly rising interest rates - not generally true. It does sting though as someone still looking to buy a house.
- BoiledCabbage 3y ago
  This is a very naive reading of the situation - it almost comes across as twisting in knots to avoid placing the blame on the responsible party: the company and its owners who were responsible for this. > Your options are to acquire appreciating assets quicker than your competitor, or you get left behind. This is wrong twice over! First of all, they are effectively monopolies, they have no competitors in their industry. The only thing they are competing against is which company can extract money the fastest (at the expense of the company and English citizens). Second of all, from the article, they aren't spending the raised money on capital investments. > For example, South East Water—thousands of whose customers were left without running water this summer—spent more on dividends and servicing its debt than on infrastructure in the two years to March 2022. Water bills for Britain as a whole have increased by around 360%, more than double the rate of inflation, since privatisation. Over that time, annual capital investment by the ten largest water and sewage companies has fallen by some 15%, according to research by the Financial Times (FT). Privatization is an utter failure here, just as would be predicted given the situation, and it's crazy to see an attempt to rationalize it away.
  - lotsofpulp 3y ago
    I am not claiming it is a good thing for society. >The only thing they are competing against is which company can extract money the fastest (at the expense of the company and English citizens). Second of all, from the article, they aren't spending the raised money on capital investments. The owners of the company are competing with others in society to buy land/houses/cars/services/etc.
    - Retric 3y ago
      If the owners want cash they can do the same thing, take out a loan vs the value of the stock to buy more X. The advantage when a company does it is your liability stops at the value of the stock where leverage isn’t. Except, not every investor wants every investment to be highly leveraged in this way. The entire point of utilities in most peoples portfolios is as very stable dividend stocks. It’s the people running the company who have incentives to do these kinds of transactions.
  - lettergram 3y ago
    Utility companies in Illinois are private & can only charge X% (10% for electrical) more than they invest. Frankly, the power & rail network here are amazing, in large part because that system incentivizes maximum reinvestment as they can then charge more money and return larger amounts to share holders. Competitors who take large loans and fail to deliver are out competed by alternatives who went a more efficient route. The profit margins are fixed, but everything is still competitive.
  - banannaise 3y ago
    > This is wrong twice over! First of all, they are effectively monopolies, they have no competitors in their industry. The only thing they are competing against is which company can extract money the fastest (at the expense of the company and English citizens). I think that's what the poster above was trying to say - they're not competing for customers, they're competing for investors. Effectively their only products are ROI and share value. And when I say it out loud, I get a little shock, as I realize how much all industries are trending that way. No matter how consumer-facing your business is, the real competition is for capital investment. Consumers had better hope that capital investment depends on their happiness, because if it doesn't, their happiness is going to slide far down the priority ladder.
fmajid 3y ago
A better question is, where do they keep finding such gullible lenders? That The Economist, the City of London's answer to Pravda, published this article at all is telling.
- njs12345 3y ago
  The lenders will come out alright. Even if the utilities end up being renationalised their debt will be converted into government bonds. The mugs here are the public, which end up paying to service the debt that has been used to issue dividends.
- blowski 3y ago
  > That The Economist, the City of London's answer to Pravda, published this article at all is telling. Do you mean it's extremely left wing? Or pro-authoritarian capitalist? Or the most left-wing publication you can find in an otherwise capitalist group?
  - captainbland 3y ago
    I'd assume they meant (generally) uncritically pro City of London corporations and the London influenced strain of economic liberalism which they represent. But I do think it's a bit of hyperbole in a way, although I'm only tangentially familiar with the publication.
  - mikrl 3y ago
    I wouldn’t read that much into it. Pravda is both the Russian word for ‘truth’ (правда) and was/is a publication advancing the interests of the USSR/Russian state establishment. The ‘economist’ implies a similar ‘truthfulness’ (it must be right about the economy if it’s an economist!) and advances the interests of the London financial establishment.
  - fmajid 3y ago
    I mean that it usually parrots the party line (in hte case of Pravda, literally). Criticizing privatization is for them heresy of the highest order.

Sounds like good "modern" governance. You've got assets? Use them as collateral to take on debt so you can free up capital and give it back to the shareholders. Value!

lotsofpulp 3y ago

That is inevitable with super low interest rates for a super long time, especially near zero. Your options are to acquire appreciating assets quicker than your competitor, or you get left behind. See people who bought homes at 5% down versus people who waited to have 20% down. The people who took on more debt were rewarded nicely with huge gains, and the people, who were prudent, now decide on paying a few hundred thousand more, if they were even able to keep up with saving a larger down payment.

etrautmann 3y ago
This is highly specific to the period of time with rapidly rising interest rates - not generally true. It does sting though as someone still looking to buy a house.
BoiledCabbage 3y ago
This is a very naive reading of the situation - it almost comes across as twisting in knots to avoid placing the blame on the responsible party: the company and its owners who were responsible for this. > Your options are to acquire appreciating assets quicker than your competitor, or you get left behind. This is wrong twice over! First of all, they are effectively monopolies, they have no competitors in their industry. The only thing they are competing against is which company can extract money the fastest (at the expense of the company and English citizens). Second of all, from the article, they aren't spending the raised money on capital investments. > For example, South East Water—thousands of whose customers were left without running water this summer—spent more on dividends and servicing its debt than on infrastructure in the two years to March 2022. Water bills for Britain as a whole have increased by around 360%, more than double the rate of inflation, since privatisation. Over that time, annual capital investment by the ten largest water and sewage companies has fallen by some 15%, according to research by the Financial Times (FT). Privatization is an utter failure here, just as would be predicted given the situation, and it's crazy to see an attempt to rationalize it away.
- lotsofpulp 3y ago
  I am not claiming it is a good thing for society. >The only thing they are competing against is which company can extract money the fastest (at the expense of the company and English citizens). Second of all, from the article, they aren't spending the raised money on capital investments. The owners of the company are competing with others in society to buy land/houses/cars/services/etc.
  - Retric 3y ago
    If the owners want cash they can do the same thing, take out a loan vs the value of the stock to buy more X. The advantage when a company does it is your liability stops at the value of the stock where leverage isn’t. Except, not every investor wants every investment to be highly leveraged in this way. The entire point of utilities in most peoples portfolios is as very stable dividend stocks. It’s the people running the company who have incentives to do these kinds of transactions.
- lettergram 3y ago
  Utility companies in Illinois are private & can only charge X% (10% for electrical) more than they invest. Frankly, the power & rail network here are amazing, in large part because that system incentivizes maximum reinvestment as they can then charge more money and return larger amounts to share holders. Competitors who take large loans and fail to deliver are out competed by alternatives who went a more efficient route. The profit margins are fixed, but everything is still competitive.
- banannaise 3y ago
  > This is wrong twice over! First of all, they are effectively monopolies, they have no competitors in their industry. The only thing they are competing against is which company can extract money the fastest (at the expense of the company and English citizens). I think that's what the poster above was trying to say - they're not competing for customers, they're competing for investors. Effectively their only products are ROI and share value. And when I say it out loud, I get a little shock, as I realize how much all industries are trending that way. No matter how consumer-facing your business is, the real competition is for capital investment. Consumers had better hope that capital investment depends on their happiness, because if it doesn't, their happiness is going to slide far down the priority ladder.

fmajid 3y ago

A better question is, where do they keep finding such gullible lenders? That The Economist, the City of London's answer to Pravda, published this article at all is telling.

njs12345 3y ago
The lenders will come out alright. Even if the utilities end up being renationalised their debt will be converted into government bonds. The mugs here are the public, which end up paying to service the debt that has been used to issue dividends.
blowski 3y ago
> That The Economist, the City of London's answer to Pravda, published this article at all is telling. Do you mean it's extremely left wing? Or pro-authoritarian capitalist? Or the most left-wing publication you can find in an otherwise capitalist group?
- captainbland 3y ago
  I'd assume they meant (generally) uncritically pro City of London corporations and the London influenced strain of economic liberalism which they represent. But I do think it's a bit of hyperbole in a way, although I'm only tangentially familiar with the publication.
- mikrl 3y ago
  I wouldn’t read that much into it. Pravda is both the Russian word for ‘truth’ (правда) and was/is a publication advancing the interests of the USSR/Russian state establishment. The ‘economist’ implies a similar ‘truthfulness’ (it must be right about the economy if it’s an economist!) and advances the interests of the London financial establishment.
- fmajid 3y ago
  I mean that it usually parrots the party line (in hte case of Pravda, literally). Criticizing privatization is for them heresy of the highest order.