One of the biggest investors in Thames Water has slashed the value of its stake in the debt-laden utility by almost two-thirds, weeks after the company admitted that it does not have enough money to make its debt repayments.
A fund controlled by Thames Water’s second largest investor, the University Superannuation Scheme (USS), reported a loss of almost £600m last year after writing down the value of the embattled water company as it struggles to shore up its balance sheet.
The USS, the largest private pension fund in the UK, holds a 20% stake in Thames Water’s ultimate parent company, Kemble Water, mostly through its subsidiary Church Water Investment.
The investment vehicle said the value of its stake in Kemble had fallen to £364m last year from £956m in 2022. This could imply that the value of Britain’s biggest water company has plummeted from almost £5bn in 2022 to £1.9bn last year.
The second major write-down of Thames Water’s valuation in recent months follows cuts made by the company’s largest shareholder, Ontario Municipal Employees Retirement System (Omers), in July last year.
One of Canada’s biggest public sector pension funds revealed a one-third write-down after reporting that its 30% stake in Kemble had fallen from a valuation of £979m at the end of 2021 to about £700m in 2022.
A spokesperson for USS said the fund continued to back Thames’s turnaround plans and would provide “patient capital” to support the “long-term needs” of the company.
Thames’s mounting financial woes have cast doubt over the future of the company as it struggles to raise the funds needed to tackle a debt pile of around £18bn and increase investment to tackle sewage overflows and water leaks.
The company, which serves about 25% of households living in England, admitted to MPs late last year that it does not currently have enough cash to cover its debt repayments. It faces repayment deadlines for £1.4bn debt in the coming years, including £190m in April.
Fears for the future of Thames reached fever pitch last summer after its former chief executive Sarah Bentley resigned and it emerged the government was drawing up rescue plans in case an emergency re-nationalisation was required. The company last month appointed Chris Weston, a former British Gas executive, as its new boss with a pay package of up to £2.3m a year.
USS said: “The challenges facing Thames Water are the manifestation of historic under-investment over multiple decades and, more recently, the significant financial impact of soaring energy prices and other inflationary cost pressures. However, we have given our backing to Thames Water’s latest business plan.
“As a long-term investor, we can provide patient capital and be an active, responsible steward of the company. While the value we place on our Thames investment may go up or down as part of our regular revaluations, we continue to view this as a long-term investment, in line with the long-term needs of the scheme.
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“That is why we were willing to commit additional funds to the business in March [in 2023] and have shown willingness to commit more in the future.”
Thames failed to reach its goal of securing £1bn in emergency funds last July, after its shareholders agreed to make £750m available to shore up the company’s balance sheet until 2025. It has emerged that around £500m of this package is a loan which will require interest payments of 8%.
The USS spokesperson added: “We have not received a shareholder dividend or payments of interest on any shareholder loans since we first invested in 2017, with shareholders instead re-investing capital back into the business to drive improvements.
“We remain of the view that, with an appropriate regulatory environment, the long-term objective of repairing important UK infrastructure and paying pensions to our members are in strong alignment.”
