The Thames has a complex structure, with the network run by a regulated operator called Thames Water Utilities and several companies called Kemble – named after the source of the Thames – raising money to invest in the network by borrowing from bond markets.
Money is flowing back from the Thames to Kemble, but there are concerns about the size of the flow in the future. Ofwat recently launched an investigation into a £37.5m dividend that may have breached regulations.
Last week’s decline in bonds suggests that markets fear a possible chokehold on payments to bondholders.
A Thames Water spokesman said: “Thames Water Utilities is in a strong financial position and has supportive shareholders. Our shareholders have already invested £500 million of new shares in March 2023. In addition, they have conditionally agreed to provide a further £750 million of shares.” New ones for the remainder of AMP7.
“Conditions to be met include shareholder approval of a three-year refocused transformation that will deliver targeted performance improvements for customers and the environment, and a PR24 business plan that has regulatory support.
“Our shareholders have also confirmed the expected need for additional equity funding, in the order of £2.5 billion in AMP8. In total, this will equate to a total equity investment of £3.75 billion, the largest equity support package ever proposed in the UK water sector.
With shareholders such as USS and OMERS pumping £750m into the group over the summer, the question remains whether they will ride the rescue again or give up. Both groups have recently reduced the value of their stakes in the facility. This week’s bond decline could lead to another reassessment of the Times’s value.
One solution to this crisis could be to sell some assets, such as the naming rights and brand name of Thames Water, or sell large areas of land owned in the UK.
Thames licenses its logo to companies such as HomeServe, so there may also be scope to make money from the sale. Sir Adrian and Weston will study how to fix the stench around the Thames.
“It’s basically a game of cheese between the government and shareholders now as to the returns allowed versus the need to invest,” the bondholder says.
The Thames needs leaks fixed quickly.