Prospect of Thames Water nationalisation looms after shareholders cancel investment – business live | Business

Summarize this content to 100 words Thames Water to seek new emergency funding after agreement collapsesGood morning, and welcome to our live coverage of business, economics and financial markets.Thames Water has said that it is looking for new funding after it failed to meet the conditions on the first £500m of a planned £750m injection by shareholders.The announcement will raise serious questions about Thames Water’s financing, although its chief executive attempted to reassure customers across London and the south east of England that it will be “business as usual”.Thames Water reached the agreement on the £750m in emergency funding in July 2023. It needed the money to upgrade its infrastructure after leakage rates hit five-year highs in 2022 – a situation that continued in 2023. That has heaped political pressure on the UK water industry, as voters express their outrage about raw sewage flowing into British rivers.The company today said that regulator Ofwat had objected to its plans, meaning that it had not met conditions outlined in the funding deal. It said:
As a result, the conditions of the support letter from July 2023 have not been satisfied and the first £500m of the new equity that had been anticipated will not be provided by Thames Water’s shareholders by 31 March 2024.
The company said it will seek new investments in the coming months:
Thames Water intends to pursue all options to secure the required equity investment from new or existing shareholders.
Chris Weston, Thames Water’s chief executive, said:
I’d like to reassure our customers that, despite this announcement, it is business as usual for Thames Water. Our 8,000 staff remain committed to working with our partners in the supply chain to provide our services for the benefit of our customers, communities and the environment.
UK confirmed in recessionIn other news, the UK economy has been confirmed as in recession during the final quarter of 2024.Unrevised figures from the Office for National Statistics (ONS) showed that GDP fell by 0.1% in the third quarter, followed by 0.3% in the fourth quarter.More on both stories to follow.The agenda
8:55am GMT: Germany unemployment rate (March; previous: 5.9%; consensus: 5.9%)
12:30pm GMT: US GDP growth rate (fourth quarter final estimate; prev.: 4.9%; cons.: 3.2%)
12:30pm GMT: Canada monthly GDP growth rate (January; prev.: 0%; cons.: 0.4%)
ShareKey eventsBaltimore bridge collapse could be biggest marine insurance loss – Lloyd’s chairA drone image shows the collapse of Baltimore’s Francis Scott Key Bridge after it was hit by Cargo Ship Dali on 26 March 2024. Photograph: EyePress News/REX/ShutterstockThe Baltimore bridge collapse could become the largest single marine insurance loss of all time, according to the chair of insurer Lloyd’s of London.The Francis Scott Key Bridge collapsed after being struck by a cargo ship, Dali, chartered by shipping company Maersk, in the early hours of Tuesday. The bodies of two men trapped in their vehicle were recovered from the waters on Wednesday, with others including workers on the bridge missing and presumed dead.The bridge collapse will enforce the extended closure of one of the major shipping arteries on the US east coast, prompting a huge redirection of shipments to other ports.Bruce Carnegie-Brown, chair of the Lloyd’s of London insurance market, told Reuters that it was too soon to put a figure on the total insurance loss, but he said he would be “very surprised” if the event did not result in a multi-billion dollar loss. He said:
The tragedy has the capacity to become the largest single marine insurance loss ever.
ShareThames Water’s hugely complex debt structure, added to the jargon-heavy regulatory systems, can make it tricky to understand what is going on.But the main upshot of today is that there is not enough money to pay for the investments in infrastructure – pipes, ponds, treatment works – needed to supply clean water to the south-east of England.Shareholders do not want to pay more, but that raises the question of who exactly will have to pay the costs of supplying the most essential commodity to the UK’s capital.There’s a certain type finance guy who likes to throw around long words like “whole business securitisation” to bamboozle the lay person on Thames Water, as if it’s just a fact of life that a regulated utility has one of the most complex and indebted capital structures in Europe— Robert Smith (@BondHack) March 28, 2024

Translation: Ofwat would not grant Thames Water sufficient dispensation from complying with environmental laws to make further investment from shareholders a profitable prospect. Ofwat needs to hold firm: if Thames can’t comply with the law & remain solvent, send them to the wall pic.twitter.com/oL9owQMM0E— Paul Powlesland (@paulpowlesland) March 28, 2024

ShareChancellor Jeremy Hunt has said that the government is in monitoring mode.Reuters reported that Hunt, speaking in London, told reporters:
The Treasury will continue to monitor very carefully what’s happening at Thames Water. Our understanding is that the company is still solvent.
ShareLiberal Democrat treasury spokesperson Sarah Olney said ministers must put the firm into special administration straight away and turn it into a public benefit company.She said:
Thames Water is a broken firm. It is teetering on the brink of collapse and this it is clear that things cannot go on as they are.
Drastic action is needed to keep the taps running for millions of customers. It must be clear by now that we can’t trust these asset strippers to put out their own blaze.
Execs have pocketed sky-high bonuses, gave billions to overseas investors, whilst watch[ing] their infrastructure crumble. The board should hang their heads in shame.
No longer should this firm be allowed to mistreat customers and destroy our environment with their filthy sewage.
ShareThe political reaction to Thames Water’s troubles is coming through. The Labour party describes the situation as: “Thames Water shareholders refuse to inject more cash unless bills rise”.That may not be quite what the shareholders want to hear.But in a what could be a UK election year it could prove a powerful attack line. The coalition against human faeces in rivers is – perhaps unsurprisingly – quite broad.Steve Reed, Labour’s shadow environment secretary, said:
The Conservatives weakened regulation allowing water companies to get massively in debt while the sewage system crumbled and illegal sewage dumping hit record levels.
The Conservatives’ negligence is why the country’s largest water company is now in this worrying position.
The government and regulators must do everything in their power to stabilise the company and ensure new investment comes through to fix the broken sewage system without taxpayers being left to foot the bill.
Labour will strengthen the regulator’s powers and make financial stability a priority to prevent this situation from happening again.
ShareThe nine shareholders of Thames Water have issued a statement which in effect blames Ofwat, the water regulator, for their refusal to provide more funds.The shareholders – a mix of pension funds and sovereign wealth funds from Canada, the UK, China and elsewhere – claimed that their July 2023 promise of £3.25bn in investment – the first £500m of which was due today – would have addressed the “root cause” of Thames Water’s problems.The regulator clearly did not agree. The shareholders have said they will notHere is their statement in full:
Shareholders and Thames Water have been working with the regulator Ofwat for over a year on how to address the complex challenges facing the business. These include both meeting current funding demands and the urgent need for substantial investment to improve performance.
These discussions led to the submission of a business plan which included the largest ever investment programme by any UK water company – over £18bn – to improve customer service and environmental standards. To support such unprecedented investment, shareholders committed to supporting a further £3.25bn of investment on top of the £500m provided last year, and pledged to take no cash out of the business until a turnaround was delivered. This was a solution which addresses the root cause of Thames Water’s challenges without the need for any taxpayer funding.
However, after more than a year of negotiations with the regulator, Ofwat has not been prepared to provide the necessary regulatory support for a business plan which ultimately addresses the issues that Thames Water faces. As a result, shareholders are not in a position to provide further funding to Thames Water.
Shareholders will work constructively with Thames Water, Ofwat and Government on how to address the consequences of Ofwat’s decision.
The shareholders (in order of the size of their holdings) are:
Canadian pension fund Omers
Britain’s Universities Superannuation Scheme
Infinity Investments (which is owned by Abu Dhabi’s sovereign wealth fund)
British Columbia Investment Management Corporation
UK-based investor Hermes GPE
sovereign wealth fund China Investment Corporation
Queensland Investment Corporation
Aquila GP (a subsidiary of investor Fiera Infrastructure)
Dutch pension fund Stichting Pensioenfonds Zorg en Welzijn.
ShareUK recession confirmed after weakest non-pandemic year since 2009Breaking off from Thames Water for a moment, let’s get a bit more on the major UK economics story of the day so far: the confirmation that the UK entered recession at the end of 2023.UK gross domestic product (GDP) is estimated to have fallen by an unrevised 0.3% in the final quarter of 2023, October to December, after an unrevised fall of 0.1% in the previous quarter, according to the Office for National Statistics (ONS).The figures confirm a previous reading which indicated the UK economy contracted just as prime minister Rishi Sunak considers when to call an election.Output from the services, production and construction sectors all declined in the quarter, the ONS said.Across the whole of 2023, GDP grew by only 0.1%, following growth of 4.3% in 2022 as the UK bounced back from the coronavirus pandemic lockdowns. The ONS said:
Excluding the year 2020, which was affected by the coronavirus (COVID-19) pandemic, this is the weakest annual change in real GDP since the financial crisis in 2009.
This graph shows the recessionary quarters (in cream). Note the massive swings in output during the coronavirus pandemic.The UK’s GDP has contracted during two consecutive quarters. Photograph: Trading EconomicsYou can read the full story from the Guardian’s economics correspondent, Phillip Inman, here:ShareIf you’re catching up with the Thames Water crisis, here is some further reading.First of all, on the pollution being spewed into the England’s rivers:On the financial chicanery at Thames Water, here is a very useful primer:And here is the historical context of where a lot of the money has gone:ShareUK government prepared for ‘range of scenarios’ at Thames WaterThe UK government has said it is prepared for “a range of scenarios” for Thames Water.A government spokesperson said:
Like any company needing to secure new investment there are a wide range of options available to water companies, including the injection of new equity from any prospective investors.
Ofwat, as the financial regulator of the water sector, continues to engage with Thames Water to improve its financial resilience.
We prepare for a range of scenarios across our regulated industries – including water – as any responsible government would.
ShareThames Water will ‘pay our part’ to clean up river ThamesThe University of Oxford men’s rowing team during a training session on the River Thames in London on Wednesday. Photograph: Zac Goodwin/PAThames Water chief executive Chris Weston says that the company will “pay our part” to clean up London’s Thames river, in response to criticism from the University of Oxford’s rowing coach.Sean Bowden, who has coached Oxford’s men’s rowing team since 1997, said yesterday that the state of the Thames was a “national disgrace”, highlighting the presence of harmful E coli bacteria in high levels in the river. Oxford takes on rival Cambridge every year in the Boat Race on the Thames.Weston says:
I don’t want to pollute rivers, and nor does anyone in Thames Water. I would point out that E coli has many different sources. It’s not just from sewage; it’s also from land run-off, it is from highway run-off; it is from animal faeces. All of those things contribute to the problem.
And I am absolutely determined that at Thames, that we will pay our part in cleaning up the problem, and so the Thames is a river that people can use as they would like to every day.
ShareThames Water chief executive Chris Weston says the company will continue to serve its 15m customers.Of special administration, Weston says:
There is a possibility, but the key message today is one of reassurance.
Weston says he is not going to comment on past actions (when it was run by different management).There will be a huge amount of investment in the underlying infrastructure, Weston says.ShareThames Water boss: company is ‘a long way’ from special administration collapseThames Water chief executive Chris Weston says that a special administration, under which the UK government would probably have to step in to secure water supplies, is a long way away.However, he did not rule out the prospect, speaking to BBC Radio’s Today programme.He said:
If at the end of the day – probably well into the end of next year – we were in a situation where we had no equity, then there would be the prospect […] of special administration, but we are a long way from that point at the moment.
ShareBeing unable to raise new funding is “a long way off”, says Thames Water’s Chris Weston.He says it is a hypothetical question. It is premature to go there at the moment, he says.ShareChris Weston says that Thames Water had hoped to confirm the funding package today, but we are not there yet.He says that the company is in a “solid financial position” and has enough money to last until May 2025.That will give the company time to talk to existing and new shareholders about new funding.ShareChris Weston, Thames Water’s chief executive, is speaking to BBC Radio’s Today programme.He says he can reassure customers that the business continues to operate as usual.ShareFergal Sharkey, the punk singer turned water pollution campaigner, has said that the UK government should not give Thames Water “a penny of the public’s money”.Thames Water confirms it, shareholders are not prepared to bail the company out.Will TW make it through the holiday weekend? Tick-tock, tick-tock, tick-tock… 🤔Not a penny of the public’s money, you hear that @RishiSunak @10DowningStreet, not a penny of the public’s money. pic.twitter.com/cFTxDYZlXh— Feargal Sharkey (@Feargal_Sharkey) March 28, 2024

ShareThames Water says Ofwat feedback on its investment plans made it “uninvestible” – because the regulator’s disapproval could mean the water company could face even bigger costs to rectify the situation.The water company must set out a five-year plan that meets the regulator’s expectations. However, the plan for the 2025-2030 period (called PR24) has been sunk by larger required investments under its next asset management plan period 8 (called AMP8).New: Thames Water confirms its shareholders will not be providing planned £75” in equity funding because discussions with Ofwat have left its business plan “uninvestable”. Raises major question over future funding and administration of UK’s largest water co pic.twitter.com/Ivb1QBDSIN— Paul Kelso (@pkelso) March 28, 2024

The company said:
Thames Water aims to secure a PR24 regulatory determination that is affordable for customers, deliverable and financeable for Thames Water, as well as investible for equity investors.
ShareThames Water to seek new emergency funding after agreement collapsesGood morning, and welcome to our live coverage of business, economics and financial markets.Thames Water has said that it is looking for new funding after it failed to meet the conditions on the first £500m of a planned £750m injection by shareholders.The announcement will raise serious questions about Thames Water’s financing, although its chief executive attempted to reassure customers across London and the south east of England that it will be “business as usual”.Thames Water reached the agreement on the £750m in emergency funding in July 2023. It needed the money to upgrade its infrastructure after leakage rates hit five-year highs in 2022 – a situation that continued in 2023. That has heaped political pressure on the UK water industry, as voters express their outrage about raw sewage flowing into British rivers.The company today said that regulator Ofwat had objected to its plans, meaning that it had not met conditions outlined in the funding deal. It said:
As a result, the conditions of the support letter from July 2023 have not been satisfied and the first £500m of the new equity that had been anticipated will not be provided by Thames Water’s shareholders by 31 March 2024.
The company said it will seek new investments in the coming months:
Thames Water intends to pursue all options to secure the required equity investment from new or existing shareholders.
Chris Weston, Thames Water’s chief executive, said:
I’d like to reassure our customers that, despite this announcement, it is business as usual for Thames Water. Our 8,000 staff remain committed to working with our partners in the supply chain to provide our services for the benefit of our customers, communities and the environment.
UK confirmed in recessionIn other news, the UK economy has been confirmed as in recession during the final quarter of 2024.Unrevised figures from the Office for National Statistics (ONS) showed that GDP fell by 0.1% in the third quarter, followed by 0.3% in the fourth quarter.More on both stories to follow.The agenda
8:55am GMT: Germany unemployment rate (March; previous: 5.9%; consensus: 5.9%)
12:30pm GMT: US GDP growth rate (fourth quarter final estimate; prev.: 4.9%; cons.: 3.2%)
12:30pm GMT: Canada monthly GDP growth rate (January; prev.: 0%; cons.: 0.4%)
Share
https://www.theguardian.com/business/live/2024/mar/28/thames-water-crisis-sewage-rivers-funding-uk-recession-gdp-economy-sterling-business-live Prospect of Thames Water nationalisation looms after shareholders cancel investment – business live | Business