Companies that attract political interest always worry me. I like investments where everything is left to the laws of supply and demand. Foremost among sectors that politicians focus on has always been utilities, and once again National Grid (LSE: NG) is at the forefront of recent political murmurings.
In the Labour party manifesto, Jeremy Corby outlined re-nationalisation plans in certain industries, among these the infrastructure and other assets that National Grid uses to supply the UK with power.
Far from taking this lightly, National Grid, along with SSE (which could also be effected) have moved their holdings aboard – National Grid’s UK business now sits in holding companies in Luxembourg and Hong Kong.
Any real threat?
In many senses, this move may be deemed fairly over-reactive. I have already argued, in the case of BT (for which Jeremy Corbyn said he would nationalise its Openreach broadband arm) that the chances of Labour actually getting into power with enough of a majority to undertake these efforts seems very unlikely at the moment. So why react so strongly?
Arguably with broadband, public support for nationalisation and “free broadband for all” is probably somewhat lacking. Certainly, free internet seems nice, and there are many rural areas with poor service, but most people would feel that it is not exactly the end of the world (and certainly not a danger to people) if some areas have slow internet speeds.
The case with the utility sector is entirely different however. Over the past few years there has been growing unrest with energy pricing for the public – governments and consumer rights groups often arguing that a lack of transparency has led to people being charged unfair amount by energy firms.
The consequences, meanwhile, are serious. High energy prices, as well as higher costs for every household (and the voters within) trend to leave the most vulnerable in society at risk.
Gas and electricity is, therefore, one of the industries that would probably have more public and political support for nationalisation and cost reduction – the public care far more for people freezing in the cold months than shareholders losing out. National Grid may not be a direct consumer energy supplier like SSE, but its role in running the actual networks that get electricity to customers mean it could be affected.
Real protection?
Interestingly, by moving its business to Hong Kong and Luxembourg, National Grid shareholders are perhaps only slightly protected. While there are a number of international investment rules between the countries that may make it harder to nationalise the company, the UK parliament is sovereign in this country, and with large enough support, a Labour government could still make it happen.
In CEO John Pettigrew’s own words, re-domiciling “wouldn’t change the UK government’s ability if it chose to renationalise the UK assets”.
It seems therefore, that this move offshore only makes it harder, not impossible, to nationalise the company, and thus protects shareholders to just a small degree.
While I suspect the chances of Jeremy Corbyn actually being in a position to implement this plan are very slim, with this kind of political controversy and headlines being made, I personally prefer to avoid investing in shares of a company that can lose such control. National Grid is just not for me at the moment.
