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Enron's Azurix to sell Wessex Water at loss

HoustonChronicle.com -- http://www.HoustonChronicle.com | Section: Business
March 25, 2002, 9:56PM

By LAURA GOLDBERG

Enron's Azurix Corp. reached a deal to sell its U.K.-based Wessex Water, the cornerstone of Enron's failed attempt to build a thriving water business, to a Malaysian company for $777 million in cash.

The price is significantly less than Enron paid for Wessex, which provides water and sewer services to consumers in England.

As part of the sale, YTL Power International would also take on about $991 million in Wessex debt, putting the deal's total value at almost $1.8 billion.

Enron, which bought Wessex in 1998, paid about $2.4 billion and assumed almost $482 million in debt, placing the total value at nearly $2.9 billion. Some on Wall Street said Enron overpaid for Wessex.

John Olson, a stock analyst with Sanders Morris Harris in Houston said of the planned YTL Power deal: "This is a tough price. They're taking a $1.1 billion haircut on the deal."

But, he said, it's difficult to say whether Enron could have received more.

"The water business in the United Kingdom has been a very marginal-growth business for the last 100 years," he said, adding that it's tough for a company to do good deals while in Chapter 11 bankruptcy, as Enron is.

Azurix, which is two-thirds owned by Enron and hasn't itself filed for bankruptcy protection, will use proceeds from the sale to repay an outstanding drawdown on a $570 million line-of-credit and to pay off bondholders.

The proceeds are expected to pay off most of Azurix's outstanding debt, Enron spokesman John Amber said.

"This is the winding down of the company," he said.

After the Wessex sale, the company's main holdings will include a few small water-related operations in Mexico and South America, and some land in California.

The deal is expected to close in about two months. The court overseeing Enron's bankruptcy also must approve the sale.

Enron intended for Wessex to serve as a platform for its water and wastewater business. Azurix sold shares to the public in June 1999.

It quickly ran into tough competition from experienced multinational rivals. They repeatedly outbid Azurix for projects, forcing Enron to pay more for some deals than they were worth. Within six months of the initial public offering, regulators in England had clamped down on water rates and Azurix's main cash flow source dwindled, sending shares down 40 percent.

Enron later took Azurix private, buying back outstanding shares it didn't own. Individual investors still own about a third of Azurix.

Azurix is on a list of ambitious overseas projects that ended up causing trouble for Enron, including the Dabhol power plant project in India.




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