Heathrow investor buys into Thames Water

New minority shareholder will support longtermism at Thames Water

Universities Superannuation Scheme (USS) has bought a 10.94 per cent stake in Kemble Water Holdings, Thames Water’s parent company.

The pension fund acquired the stake from a collection of smaller shareholders to become the third largest investor in Thames Water. USS’s other UK investments include Heathrow Airport Holdings.

Responding to the transaction, Thames Water chief executive Steve Robertson welcomed the addition of another pension fund to the shareholder make-up of Thames Water.

“Pension funds need to invest for the long-term on behalf of their members, as we do for our customers, so they are a good partner for us,” he said.

Around two-thirds of Thames Water’s investors are now drawn from pension funds, a shift which chief finacial officer Brendan Rennet recently told Utility Week leaves the comany “well positioned” to take a long term view in its business and investment strategy.

The new Kemble Water transaction comes shortly after Ofwat revealed its draft framework for the 2019 price review.

This emphasised the regulator’s expectations for improved customer service and affordability across the sector in the next AMP period. The framework also indicated a “significant” reduction will be made to the weighted average cost of capital for water companies.

Analysts have voiced concerns that these pressures may have an adverse effect on profitability for water company shareholders. At a recent industry conference Stefanie Voelz, senior credit officer at the infrastructure finance Group, Moody’s Investors Service also warned that Ofwat’s plans could affect water company creditworthiness and the cost of debt.

However, Gavin Merchant, head of real assets at USS Investment Management indicated the fund was not deterred by the rigours of the upcoming price review.

“Ofwat has set out clear expectations for the company in terms of both governance arrangements and customer service,” he said. “We are supportive of the goals of Thames Water’s management team and their objectives to deliver the best possible service to its customers.”

USS also buys into Thames at a time of particular scrutiny for the UK’s largest water company. Last month, Thames came under fire from the regulator for its performance failures and lack of transparency.

Ofwat chairman Jonson Cox set out a challenging five-point plan for the company’s transformation.

The exiting Thames Water investors who sold their 10.94 per cent stake to USS are QSuper, Alberta Investment Management Corporation and OPTrust. Their decision to sell out follows that of Australian bank Macquarie, which sold its 26 per cent share in Thames Water last year.

Macquarie’s share was bought-up by a consortium of investors led by Borealis Infrastructure.

Shareholder manoeuvres at Thames come amid wider market speculation about upcoming changes to water companies’ ownership. This weekend there were reports in the national press that investors controlling more than 50 per cent of Yorkshire Water may be considering selling up.