A significant lender to Thames Water has initiated a rapid sell-off of up to £600 million in debt amidst the looming general election, casting fresh uncertainty on the future of Britain’s largest water provider.
Preparations are underway by an undisclosed creditor to offload hundreds of millions of pounds in existing loans tied to Thames Water. Financial institutions worldwide are scrambling to mitigate their exposure to the embattled company, which finds itself on the verge of collapse.
The decision by Rishi Sunak to call for a snap general election has further compounded uncertainties surrounding a business that manages essential services for over a quarter of the nation’s households. Approximately 15 million individuals in London and the surrounding areas depend on Thames Water for their drinking water.
The water industry regulator recently announced the postponement of critical decisions on the business plans of various suppliers, including Thames Water, until after the general election.
Thames Water has sought approval to increase bills by up to 44% – or 59% when factoring in inflation – starting next year to bolster its financial position and address the ageing infrastructure of its Victorian-era pipes and sewers. Should this proposal be implemented, average customer bills would soar to £749 per year.
The company is burdened by borrowings exceeding £18 billion, posing significant financial challenges.
Ofwat had originally scheduled to release a draft determination in June, outlining the permissible charges for water companies over the five-year span from 2025 to 2030. However, it has pushed back this publication until July 12, the week following the general election.
There is considerable apprehension regarding the potential implications of a Labour government on an industry facing immense pressure to ramp up investment and significantly enhance its dismal track record concerning leaks, spills, river pollution, and environmental degradation spanning numerous years.
During his Labour leadership campaign in 2020, Sir Keir Starmer expressed his support for the idea of “common ownership of rail, mail, energy, and water,” emphasizing that public services should be managed by the public rather than generating profits for shareholders.
A group of Labour MPs, including former shadow chancellor John McDonnell, has publicly advocated for the party to explore the possibility of nationalizing the water industry. Despite this, while Labour has stepped back from previous promises to renationalize significant portions of the nation’s critical infrastructure, uncertainties persist regarding its plans for water companies and ensuring the survival of Thames Water.
Labour has committed to granting the regulator new authority to prohibit bonuses for executives of companies found to be illegally polluting rivers, lakes, and seas if the party assumes power.
Thames Water has found itself in a precarious situation after shareholders defaulted on £1.4 billion of liabilities last month and withdrew a promised £500 million cash injection, attributing their decision to Ofwat. Investors, including Canadian pension giant Omers and UK counterpart USS, attributed their eleventh-hour withdrawal from the Thames to Ofwat’s stringent stance, asserting that the regulator had rendered the company “uninvestable.”
Thames Water bonds experienced further declines this week following a wave of director departures from the board.
Restructuring experts cast doubt on the feasibility of selling a £600 million tranche of loans all at once, even at a significantly reduced price. One expert described it as a significant challenge for the market to absorb, while another deemed it “almost impossible.”
