Thames Water Ltd. has said that it will need “significant additional funds” to pay off its debts in the future and repair leaky pipes. This is despite investors agreeing to invest an extra £750m ($960.4m) into Britain’s largest water utility.
Bonds rose on Monday after the company announced that it was not able to raise the full amount of funding they had hoped for, and only raised a fraction of what they wanted.
People familiar with the matter said that the company told its debt investors in an afternoon conference call that all of the shareholders would support it, as long as the plan was approved. Thames representatives told the callers that they are confident in raising an additional £2.5 billion over the next five years, until 2030.
Johnathan Owen is a portfolio manager with TwentyFour Asset Management, London. “They have bought some time but are still not out of trouble,” he said. He said that the company was hoping regulators would allow higher returns to attract equity.
Thames Water, the company that serves almost a quarter (25%) of the UK’s population, is at the heart of a crisis as interest rates rise, increasing the payments for inflation-linked debt. The regulators are expected to call for more investment in Britain’s water system, which is plagued by chronic leaks and overflows of raw sewerage into rivers and oceans. This raises questions about privatization.
Luke Hickmore said that Thames Water’s secured bonds have been “kicked into the long grass” for now. He said that the funding package and the cash generated by the company “may be enough.”
Susannah Streeter, from Hargreaves Lansdown, a retail trading platform, said that the £750m “is very much a pumping operation for an emergency, and not a long-term financial boost to Thames Water.”
The price of a £400 million bond with a junk rating issued by Thames Water Holding Company rose almost 9 pence to 68.7 pennies at 3:41 pm in London. However, it remained below the levels two weeks earlier. The operating company’s 2027-dated €650 million ($712,000,000) bond rose by 1.8 cents, to 94.7 cents per euro. People familiar with the situation said that the utility had held discussions with government officials and regulators about contingency plans, including a temporary nationalization. However, the government believes it can avoid public ownership.
Cathryn Ross, interim chief executive officer of Thames Water, told the BBC that the company had £4.4 billion (£4 billion) in liquid assets. This would “absolutely” be enough to cover all the bills that the company will need to pay for this year and the next.
Paul Vickars is a credit analyst with Bloomberg Intelligence. He said that the agreed investment “looks enough to shore up” the balance sheet. “Thames Water shouldn’t be placed in a special management regime.”
The company must raise additional debt in order to invest in infrastructure and keep gearing pressure.
Net financing costs for the firm increased by 24% over a period of a year, due to an increase in borrowings to fund investments as well as the effect of inflation which pushed up its index-linked loan. The statutory net debt has increased by more than £1billion in the last year. Gearing dropped to 77.4% according to the company.
Streeter said that the cost of servicing water company debt will continue to be high, as long as inflation and interest rates remain high.
Two days later, city veteran Adrian Montague was appointed chairman. Adrian Montague, a city veteran, was named chairman two days later. On July 12, lawmakers will question current and former executives, along with representatives from the regulator Ofwat, about the firm’s financial stability.
Thames Water was penalized £82 million by Ofwat for poor performance. This is £50 million higher than the previous year. The company blamed operational problems on “extreme weather conditions and aging assets”.