Hyder, which has made aggressive inroads in the PFI sector, is under pressure to increase investment in its water business, and analysts say it would be advised to spend the money it borrows on this core activity rather than on stakes in PFI projects.
Hyder chief executive Graham Hawker said the firm would be unable to finance a £1.7bn water investment programme and cut prices 15-20%, as demanded by the water regulator, without borrowing more than its banks will allow.
But the firm still plans to increase its involvement in PFI projects, claiming that the money it borrows on these can be obtained on top of the cash it needs to improve water services without over-extending itself. Hyder said there was no threat to a major PFI joint-venture vehicle it has set up with Laing.
One analyst said: "Hyder needs to develop a broader unregulated business through infrastructure investments, but in pursuit of this, it has to borrow further and gear up the balance sheet. There is a conflict there."
Another said: "Hyder has overreached itself and is out of its depth. It is pencilled in for £140m of investments, borrowing like there's no tomorrow, and it is an unstable strategy.
"You have to ask about the long-term stability of the PFI consortia Hyder is in and if those stakes will soon be up for sale."
The company is a major shareholder in the preferred bidder for the £250m redevelopment of the Ministry of Defence's London headquarters, which also includes Kvaerner and Amey. It is also in joint ventures for schools and roads projects in the UK.
Hyder's head of corporate strategy Nigel Annett said analysts' fears were unfounded. He said: "In the scale of things, the PFI stakes we have are tiny compared with our spending plans, which amount to £350m a year.
"There is no pressure to sell off or unwind the PFI investments. We can always raise money for these stakes, providing the return is there. We will continue to go as fast as that market allows us."
Annett added that the best way for Hyder to meet its obligation to keep water bills down would be for it to persuade the regulator that the capital investment it is demanding cannot be carried out between now and 2005 and that it should be delayed.
Analysts also criticised Hyder's lack of "focus", arguing that executives should be concentrating more on improving the performance of its utilities side rather than PFI investments as far afield as Asia and Australia.