Standoff in investments and potential renationalization of Thames Water

In early April, Thames Water’s parent company Kemble sent a formal notice to shareholders to announce that it had defaulted on its debt payments on a € 468 million bond.  Thames Water has been experiencing financial difficulties for some time, and British regulator OFWAT has been working with the utility in recent months to develop a response to the challenges it is facing.

On the 28th of March Thames Water shareholders issued a statement indicating that a business plan had been elaborated which represented the largest ever investment programme by any UK water company, valued at over £ 18 billion (€ 21 billion) to improve customer service and adherence to environmental standards. The shareholders committed to providing an investment of 3,25 billion over and above the 500 million pledged during 2023 and pledged not to take any capital out of the business until the turnaround had been achieved.

In parallel, at the end of March, shareholders held back the investment of the 500 million pledged last year, stating that the business plan for the company was ‘uninvestable’. They argued that industry regulations, and in particular bills for customers, should be adapted. Shareholders are advocating the payment of higher water bills. Thames Water has indicated that water rates need to increase by 40% by 2030 for the company to be able to address its current debt of € 16.4 billion. Failing the securing of private investment, Thames Water would need to be renationalized.

By mid-April, without a clear solution in sight, government contingency plans for renationalization of the utility were reportedly further refined. In terms of the recent plans, the utility would be given a parastatal status – operating at arm’s length from government – as an interim measure allowing government more control over the internal reorganization prior to its reprivatization. According to the Guardian and the Financial Times , the company could be broken into two entities: one “London Water” company serving the capital and  a “Thames Valley”.

In the event that a private sector solution is not found, some investors stand to lose up to 40% of their investments. This prospect has reportedly prompted a wider sell off of bonds by shareholders of other utilities in the U.K. , even though the financial position of utilities such as Southern Water and Northumbrian Water is much stronger than that of Thames Water. Similarly the bonds at Thames Water’s parent company Kemble are currently trading at a discount as a result of investor concerns surrounding the utility.