The Government is on stand-by to step in should struggling utility Thames Water collapse.
Reports emerged this week that the company needs more money to survive. It is thought to be in the red to the tune of £13.8 billion, a figure that is around £840 million higher than six months earlier.
The company’s net debt has grown from just under £11 billion in 2018. Much of the debt was added when Thames Water was owned by Macquarie, the massive Australian investor.
In December 2005, before Macquarie bought the utility, Thames Water’s net debt was just £2.4 billion. When Macquarie sold it around a decade later, the debt pile had ballooned to more than £10 billion.
Thames Water had no debt when it was privatised by Margaret Thatcher in 1989.
Who actually owns Thames Water?
Through a series of holding companies, Thames Water is co-owned by a series of pension funds and foreign governments.
The biggest single shareholder is the Ontario Municipal Employees Retirement System, which holds around 32 per cent of the shares. Another pension fund, the UK-based Universities Superannuation Scheme, holds another 20 per cent.
Around 10 per cent of the shares are owned by a subsidiary of the Abu Dhabi sovereign wealth fund, which is owned by the Abu Dhabi Government, and China’s sovereign wealth fund owns a little under 9 per cent.
Other investors include the British Columbia Investment Management Corporation (8.7 per cent), Hermes GPE (8.7 per cent), Queensland Investment Corporation (5.4 per cent), Aquila GP Inc (5 per cent), and Stichting Pensioenfonds Zorg en Welzijn (2.2 per cent).
What interest does Thames Water pay on its debt?
Interest rates have been soaring over the last year for most people, and Thames Water is no different.
On average the interest that Thames Water paid on its debt was 6.63 per cent in the year that ended in March 2022, compared to 4.55 per cent in 2020.
As of last March, around £5.6 billion of Thames Water’s debt was at fixed interest rates, but around £7.7 billion of it was linked to retail price index inflation (RPI).
The company says that its loans are linked to inflation because the amount it charges customers also rises hand-in-hand with inflation. However customer bills are linked to the consumer prices index (CPI), not to RPI.
RPI has been much higher than CPI in recent times, putting extra pressure on the water company’s finances.
In May this year, RPI was at 11.3 per cent while CPI was only 8.7 per cent. RPI peaked at 14.2 per cent in October last year.
What could happen if the Government has to step in?
While most companies enter administration when they fail, some companies are considered too important to go bust.
Water and energy companies are among these because if they stop operating people could lose access to vital resources.
So for these companies the Government or regulator Ofwat can apply to a court to appoint a special administrator.
If called in, the special administrator would continue to run the company as usual, ensuring that water supplies to homes and businesses continue.
The administrator would also try to find another investor or private company to buy Thames Water and bring it out of administration.
The special administration regime (SAR) has only been used once before, when Bulb Energy collapsed in late 2021. Bulb was later bought by its former rival Octopus.
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