UK government considering nationalizing Thames Water as crisis deepens

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Ministers have discussed the temporary nationalization of Thames Water as investors and the government brace for a possible collapse of the debt-ridden utility.

Wednesday’s contingency plan came a day after the abrupt exit of Sarah Bentley, chief executive of Thames Water, which is struggling to turn around a company with a legacy of underinvestment and £14 billion in debt, as UK interest rates hit 2008. reached its highest level since then.

The state of the UK’s water and sewage networks has become a hot political issue, with increased attention being paid to pollution and leakage, and questions about whether privatized utilities are prioritizing shareholder dividends over investment.

The prospect of a temporary nationalization saw the price of 2026 bonds sold by Kemble Water Holdings, the parent company of Thames Water, fall from 35 pence to 50p in the distress zone.

The environment ministry held emergency talks with industry regulator Ofvat to discuss a government-led solution in the coming weeks if the country’s biggest water company is unable to raise private finance, according to government officials.

Shareholders invested £500 million in the company 12 months ago – the first equity injection since privatization – and have pledged an additional £1 billion, subject to conditions. But £500 million was only paid this March and an additional £1 billion has never been paid.

Thames Water said on Wednesday it was working “constructively” with its shareholders on infusing more equity into the company to support its “turnaround and investment plans”.

More than half of the group’s debt is linked to inflation, which the company has justified by saying that customer bills are also linked to inflation. However, debt is linked to the RPI measure, at a historically wide premium to CPI inflation, which is used in pricing bills.

Officials said one option was to put Thames Water under a special governance arrangement. The SAR process, which was introduced in 2011 and would actually mean public ownership, is to be used for the first time in 2021 to rescue energy supplier bulbs.

“We need to make sure Thames Water survives as a single entity,” Minister for Business and Trade Cammy Badenoch told Sky News. “My colleagues across government are looking at what we can do.”

“Defra and Ofwat are planning for all scenarios,” said a government official.

Another said: “Theoretically, the company could end up in SAR, but I need to stress that this is a contingency plan rather than a preferred outcome.”

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Thames Water has a complex ownership structure, with several levels, only one of which is regulated by Ofwat.

The company, which mainly serves London and the south-east of England, and was privatized by Margaret Thatcher’s government in 1989, is owned by a group of private equity, pension and infrastructure funds. .

Its largest shareholder is the Ontario Municipal Employees’ Retirement System with a 31 per cent stake. Other investors include UK pension fund University Superannuation Scheme as well as Chinese and Abu Dhabi sovereign wealth funds and infrastructure fund Aquila GP. Those investors declined to comment.

A Defra official said the ministry was “constantly” updating current legislation to “make sure it is fit for purpose”, adding: “We do that of course and if we don’t If you criticize us, we need to plan “for every eventuality”.

Sarkar said, ‘This is the matter of the company and its shareholders. We prepare for a wide range of scenarios in our regulated industries – including water – as any responsible government does.”

It added: “The entire sector is financially resilient. Ofwat continues to monitor the financial condition of all major water and wastewater companies.

Ofwat did not immediately respond to a request for comment. The contingency talks were first reported by Sky News.

Britain’s water companies have borrowed £60.6bn, using the proceeds from customer bills for interest payments after being sold for privatization three decades ago with almost no debt.

The entire sector is now under increasing inflationary pressure, including rising energy and chemical prices and higher interest payments on its loans. S&P, the ratings agency, has a negative outlook for two-thirds of UK water companies – indicating the potential for a downgrade as a result of weak financial resilience. On average, more than half of the sector’s debt is linked to inflation.

Ofwat said in December that it was concerned about the financial resilience of several water companies: Thames Water, Yorkshire Water, SES Water and Portsmouth Water.

Southern Water, which serves 4.2 million customers in Kent, Sussex and Hampshire, was saved from bankruptcy when Australian infrastructure investor Macquarie agreed to take control of the company in 2021 in a private deal with Ofvat. had agreed.

Additional reporting by Josephine Cumbo in London

Get free Thames Water plc updates

we will send you one myFT Daily Digest Latest Email Rounding Thames Water Plc News every morning.

Ministers have discussed the temporary nationalization of Thames Water as investors and the government brace for a possible collapse of the debt-ridden utility.

Wednesday’s contingency plan came a day after the abrupt exit of Sarah Bentley, chief executive of Thames Water, which is struggling to turn around a company with a legacy of underinvestment and £14 billion in debt, as UK interest rates hit 2008. reached its highest level since then.

The state of the UK’s water and sewage networks has become a hot political issue, with increased attention being paid to pollution and leakage, and questions about whether privatized utilities are prioritizing shareholder dividends over investment.

The prospect of a temporary nationalization saw the price of 2026 bonds sold by Kemble Water Holdings, the parent company of Thames Water, fall from 35 pence to 50p in the distress zone.

The environment ministry held emergency talks with industry regulator Ofvat to discuss a government-led solution in the coming weeks if the country’s biggest water company is unable to raise private finance, according to government officials.

Shareholders invested £500 million in the company 12 months ago – the first equity injection since privatization – and have pledged an additional £1 billion, subject to conditions. But £500 million was only paid this March and an additional £1 billion has never been paid.

Thames Water said on Wednesday it was working “constructively” with its shareholders on infusing more equity into the company to support its “turnaround and investment plans”.

More than half of the group’s debt is linked to inflation, which the company has justified by saying that customer bills are also linked to inflation. However, debt is linked to the RPI measure, at a historically wide premium to CPI inflation, which is used in pricing bills.

Officials said one option was to put Thames Water under a special governance arrangement. The SAR process, which was introduced in 2011 and would actually mean public ownership, is to be used for the first time in 2021 to rescue energy supplier bulbs.

“We need to make sure Thames Water survives as a single entity,” Minister for Business and Trade Cammy Badenoch told Sky News. “My colleagues across government are looking at what we can do.”

“Defra and Ofwat are planning for all scenarios,” said a government official.

Another said: “Theoretically, the company could end up in SAR, but I need to stress that this is a contingency plan rather than a preferred outcome.”

You are viewing a snapshot of an interactive graphic. This is probably due to being offline or JavaScript is disabled in your browser.

Thames Water has a complex ownership structure, with several levels, only one of which is regulated by Ofwat.

The company, which mainly serves London and the south-east of England, and was privatized by Margaret Thatcher’s government in 1989, is owned by a group of private equity, pension and infrastructure funds. .

Its largest shareholder is the Ontario Municipal Employees’ Retirement System with a 31 per cent stake. Other investors include UK pension fund University Superannuation Scheme as well as Chinese and Abu Dhabi sovereign wealth funds and infrastructure fund Aquila GP. Those investors declined to comment.

A Defra official said the ministry was “constantly” updating current legislation to “make sure it is fit for purpose”, adding: “We do that of course and if we don’t If you criticize us, we need to plan “for every eventuality”.

Sarkar said, ‘This is the matter of the company and its shareholders. We prepare for a wide range of scenarios in our regulated industries – including water – as any responsible government does.”

It added: “The entire sector is financially resilient. Ofwat continues to monitor the financial condition of all major water and wastewater companies.

Ofwat did not immediately respond to a request for comment. The contingency talks were first reported by Sky News.

Britain’s water companies have borrowed £60.6bn, using the proceeds from customer bills for interest payments after being sold for privatization three decades ago with almost no debt.

The entire sector is now under increasing inflationary pressure, including rising energy and chemical prices and higher interest payments on its loans. S&P, the ratings agency, has a negative outlook for two-thirds of UK water companies – indicating the potential for a downgrade as a result of weak financial resilience. On average, more than half of the sector’s debt is linked to inflation.

Ofwat said in December that it was concerned about the financial resilience of several water companies: Thames Water, Yorkshire Water, SES Water and Portsmouth Water.

Southern Water, which serves 4.2 million customers in Kent, Sussex and Hampshire, was saved from bankruptcy when Australian infrastructure investor Macquarie agreed to take control of the company in 2021 in a private deal with Ofvat. had agreed.

Additional reporting by Josephine Cumbo in London