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One of Thames Water’s largest shareholders has reduced the value of its stake in the company by almost £600 million.
Universities Superannuation Scheme’s (USS) latest results show that the company now values its 20% stake in Thames’ parent company Kemble Water at £364 million, a dramatic decrease on the £956 million valuation it gave this time last year.
It follows Kemble being downgraded by ratings agency Fitch in December as liquidity and regulatory uncertainty plagued the country’s largest water company. The senior team at Thames Water also told a parliamentary committee at the end of last year that it did not have the funds to repay debts of £190 million that mature in April.
The company’s largest shareholder, Ontario Municipal Employees’ Retirement System (Omers), cut the value of its 31% stake by c£300 million at the end of 2022.
Above the regulated water company are five layers of holding companies that raise money to finance Thames. As well as Omers and USS, seven overseas owners hold the remaining 50% shares in Thames.
Shareholders have stumped up £1.25 billion to fund Thames’ turnaround plan for 2020-25. Raising further equity is reliant on the determination the company’s next business plan receives from regulator Ofwat for PR24.
The ownership of Thames has come under closer scrutiny in the past year as questions over financial resilience and performance have been repeatedly raised in parliament. Former owner Macquarie has also come under pressure for its role.
However, Martin Bradley, head of investments in Europe at Macquarie, defended its time at Thames as delivering improvements to leakage rates, pollution incidents and security of supply.
In particular, Macquarie has been blamed for the underinvestment in infrastructure that resulted in poor performance during the 11 years that it was associated with Thames.
Bradley said investors received £1.1 billion in shareholder distributions, while more than £11 billion was invested in infrastructure during the period.
He said Thames’ debt increased in absolute terms, during Macquarie’s involvement with the company but explained this was in line with its investment programme, which doubled the asset base.
“Going forward, the sector must attract unprecedented levels of new investment in both equity and debt, and it will be vital that investors , who mostly represent pension funds, receive a reasonable return,” Bradley said in a letter to the Financial Times.
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