Shareholder Funding Dries Up for Thames Water; Regulator Blamed

Thames Water’s shareholders say they are “not in a position to provide further funding” to the beleaguered British utilities company, and they blame the situation on inaction by U.K. water service regulator Ofwat.

Thames Water is a private utility responsible for water utilities for 16 million people in the greater London area. The company’s major institutional investors include the Canadian pension fund, the Ontario Municipal Employees Retirement System, the U.K.’s Universities Superannuation Scheme, the China Investment Corporation, and a subsidiary of the Abu Dhabi sovereign wealth fund.

In its Monitoring Financial Resilience Report for 2023, Ofwat said Thames Water needs to “deliver a significant improvement in performance, alongside a need to strengthen its financial resilience.” As a result, multiple investors, including the USS, cut the value of their investments in the company. The Ofwat report noted that to support a turnaround, Thames Water received an equity injection in 2022-2023 and a shareholder agreement for further funding by 2025, subject to conditions. The report added that the company and its shareholders both “acknowledge that further equity investment will likely be required.”

However, those conditions apparently were not met, and Thames Water shareholders are pointing fingers at Ofwat. In a statement released by the USS on behalf of all shareholders, the investors said they and Thames Water had been working with Ofwat for more than a year on how to address the “complex challenges” facing the business, which include meeting current funding demands and the “urgent need for substantial investment” to improve the firm’s performance.

The shareholders said that after the talks with Ofwat a business plan was submitted aimed at improving customer service and meeting environmental standards, which included what they claim is the largest ever investment program by a U.K. water company at more than 18 billion pounds ($22.4 billion).

To support the investment, the shareholders said they committed to supporting another 3.25 billion pounds of investment in addition to the 500 million pounds provided last year. They also pledged not to take cash out of the business until a turnaround was delivered. The shareholders say the proposed solution addressed “the root cause of Thames Water’s challenges” without requiring British taxpayers to foot any of the bill.

“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,” the shareholders said in a statement. “As a result, shareholders are not in a position to provide further funding to Thames Water.”

The shareholders added that they will still “work constructively” with Thames Water, Ofwat and the U.K. government on how to “address the consequences of Ofwat’s decision.”

Representatives for Ofwat did not immediately respond to a request for comment regarding the shareholder’s comments.