Thames Water’s biggest investor slashed the value of its stake last year, raising questions about how easy it will be for the indebted UK utility to persuade shareholders to inject much needed equity.
The Ontario Municipal Employees Retirement System, one of Canada’s biggest public sector pension funds, owns a 31 per cent stake in Thames Water, held through multiple investment vehicles including a Singapore-registered entity that owns about a fifth of the company.
Omers Farmoor Singapore PTE cut the value of its stake in Kemble Water, Thames Water’s parent company, by almost £300mn last year, a near 30 per cent write-down, according to corporate filings reviewed by the Financial Times. The entity valued its stake in Kemble at £979mn at the end of 2021, before reducing the value to about £700mn last year. Omers declined to comment.
Frédéric Blanc-Brude, director of Edhecinfra, a research centre and data provider, said the Omers write down suggested other investors could be forced to recognise losses on Thames Water, which provides water and sewage services to 15mn customers in and around London.
“The UK water utilities are presented as boring and low risk, but we can see they have large swings in value,” he said.
Thames Water shareholders, which also include the UK’s Universities Superannuation Scheme, are currently weighing whether to invest more money to help finance an operational turnaround and help cut its £16bn debt pile: the company announced last week that it had secured conditional agreement from its shareholders to invest £750mn in the business by April 2025.
But it also warned it would need a further £2.5bn from investors by 2030 to be “financially resilient” and to cut debt and reduce leaks.
The USS, which manages the retirement savings of university staff in the UK, is the company’s second-biggest shareholder, owning a 20 per cent stake in Kemble Water through Church Water Investment. Church Water has not published accounts this year but Blanc-Brude said he would expect it to report a similar percentage write down.
USS said it did not expect “events surrounding Thames Water to have a material impact on the funding position or contribution rates coming out of the 2023 valuation, nor on the security of members’ promised pensions”.
Fears about Thames Water’s finances erupted after its chief executive Sarah Bentley abruptly quit last month and it emerged the government was drawing up contingency plans in case emergency renationalisation was required.
The company is under pressure because of rising interest rates — which have increased the financing costs on its £16bn of debt — and the need to increase infrastructure spending following public outcry over sewage overflows and water leaks.
To help its finances, it is proposing a 24 per cent increase in customer bills — or an average rise of £101.00 a year — for the next regulatory period, which runs from 2025 to 2030. The regulator will decide whether it can raise bills this much at the end of next year.
Thames Water has a complex multi-layered corporate structure and just one entity — Thames Water Utility Ltd — is regulated by Ofwat. From 2025, the watchdog will have powers to prevent regulated water companies from paying dividends if their credit rating falls below a certain level, or they fail to meet financial strength tests or performance measures on the environment or services.
At least some of Thames Water’s dividends are used to pay interest on the £2bn of debt held by parent company Kemble Water, which was accrued under the group’s previous owner Macquarie. Any restrictions on those payments could “topple the whole edifice”, said Blanc-Brude.
Ofwat said that Thames Water needed to develop “a robust and credible plan to turn around the business and transform its performance for customers and the environment”.
Thames Water said its shareholders had been consistently supportive, “approving investment in the business over and above regulatory allowances, foregoing any income since 2017 and investing £500mn of new equity funding in March 2023”.