Welsh Water restructure would not affect ratings, say analysts

Proposed changes to the structure of Welsh Water will not change the company’s debt ratings, according to analysts at Fitch ratings agency.

Welsh Water is in discussion with its members to restructure the group, adding a new holding company above current holding company Glas Cymru.

Fitch Ratings affirmed Dwr Cymru’s [Welsh Water’s] senior secured class A debt and class B debt rating at ‘A’ and its class C debt at ‘BBB+’. 

In a note, the agency said: “The affirmation reflects our expectation that Dwr Cymru [Welsh Water] will maintain adequate financial metrics for the ratings, despite the material reduction of earnings for the current regulatory period from April 2015 to March 2020 (AMP6).

“While interest cover is under pressure, Fitch notes that the group has substantial financial flexibility in terms of gearing and robust cash flow characteristics.”

The new company would be a company limited by guarantee meaning it would have no shareholders, so any financial surpluses would be retained for the benefit of Welsh Water customers. However, it would sit outside the ring-fenced group, allowing the group to pay out dividends totalling only £100 million.

Fitch said this would be “easily absorbed within the current rating guidance.”

Welsh Water said the proposed changes to its structure would widen the range of its service to customers and to adapt to changes in the water sector. It added that the potential restructure will not impact on its not-for-profit model.

“The main focus of the group will continue to be the provision of Welsh Water’s excellent services to its customers, the treatment and supply of excellent quality drinking water and treatment of wastewater to protect the environment,” it said.

Glas Cymru members will hold a meeting in the New Year to formally consider the new structure.