Over the past two decades, Thames Water’s shareholders have extracted billions of pounds from the company, significantly increasing its debt.
In 2006, Australian bank Macquarie and various offshore pension funds acquired Thames and managed it collectively for ten years.
During this time, they withdrew approximately £2.7 billion in dividends through a sophisticated financial structure, primarily funded by Thames Water’s customers.
One year saw Thames Water issue a £656 million dividend, resulting in a financial loss for the company. Between 2010 and 2014, during a peak extraction phase, shareholders removed an additional £1.3 billion.
In the last year under Macquarie’s consortium, there was a distribution of £157 million, coinciding with a debt increase from £2.3 billion to £10 billion. Thames Water’s current net debt stands at around £14 billion.
The disbursements caused discontent as customer rates escalated to cover the costs of repairing defective pipes and preventing sewage overflow into the Thames.
Detractors argued that the dividend funds ought to have been allocated towards repairing Thames Water’s ageing infrastructure.
The former owner of the company, German utility behemoth RWE, also drew substantial dividends, though they were generally smaller in scale. Thames Water was privatized and listed on the stock market in 1989, allowing UK residents to invest in it.
After its acquisition by RWE in 2001, Thames became part of a complex network of companies, which accumulated significant debt under the stewardship of the Macquarie-led consortium.
The consortium employed a “whole business securitisation” strategy, essentially isolating Thames Water within a new parent company, “Kemble Water.” This structure allowed Kemble to borrow large sums from external investors, using Thames Water’s reliable revenue from customer bills as collateral. A portion of these loans were used to fund the substantial dividend distributions.
Macquarie’s infrastructure funds held a 47% stake in Kemble, while Australian, Canadian, and Dutch pension funds owned the remaining shares.
The revenue generated by the segregated Thames Water operation would subsequently ascend to Kemble, aiding in meeting the financial obligations of both bondholders and shareholders.
The intricate financial structure established earlier is still operational, but the current shareholders do not receive dividends.
Presently, any dividends transferred to Kemble are allocated for the repayment of interest on debts.
The contemporary shareholders comprise the Canadian pension fund Omers, the British university lecturers’ pension scheme USS, and Hermes, the manager of the BT Pension Scheme.
Since they acquired the business in 2017, none of these shareholders have withdrawn a dividend.
