Thames Water. What a depressing future

You either have to pay investors who want a return on their investment AND capital paying back

OR

You buy them out, add the cost to the national debt and charge customers the real cost of clean water

My guess is this government will be like the rest try and fail to make privatization work.

Which brings me back full circle really to my original post. There’s no satisfactory solution.

Dickens

How come TW ended up with so much debt?

Again - Macquarie... the debt was increased hugely under their ownership...

According to the BBC, ^"Thames Water's current debt amounts to about 80% of the value of the business, making it the most heavily indebted of England and Wales' water companies."^

Listen to this episode of the R4 programme, The Briefing Room www.bbc.co.uk/programmes/m001yxl5

When I first heard it, it had me shaking with rage. Essentially Macquarrie and the various Sovereign Wealth funds who bought it up, creamed off all the operating profits as dividends and borrowed to finance any capital investment.

For anyone wanting to understand the water industry and Thames Water in particular, this is essential listening.

David49

Just like a large bank TW is too big to fail, investors know that, the water has to keep flowing, either bail them out or buy them out, there is no third option

Successive government have been convinced they can give services on the cheap they can’t, sooner or later we will have to bite the bullet and pay the real cost.

Shareholders take that risk when they invest and they've done very well over the years.
If they leave with nothing it is not an unusual occurrence.

Allira

David49

Just like a large bank TW is too big to fail, investors know that, the water has to keep flowing, either bail them out or buy them out, there is no third option

Successive government have been convinced they can give services on the cheap they can’t, sooner or later we will have to bite the bullet and pay the real cost.

Shareholders take that risk when they invest and they've done very well over the years.
If they leave with nothing it is not an unusual occurrence.

They do take a risk. If the company goes bust they get little or nothing. They certainly don't have to be paid back whatever they paid initially for their shares.

David is ignoring what has been said about TW. For a start, their largest shareholder has written off their shares. I posted that a day or two ago. (I think I even quoted it from the Financial Times) So 'investors' clearly don't have much expectation of getting much back...

When the post WW2 Labour government nationalised various industries (which were more or less going concerns, which TW most certainly isn't) they worked out a fair value for the companies and paid the shareholders with long dated government bonds. All the government had to pay out was the annual interest on those bonds. I think TW shareholders should count themselves lucky if they got anything like that sort of return on their holdings.

I know that there is a lot of investment needed to bring the water infrastructure up to scratch but if the state were to invest in it it would make a huge contribution to growth in the economy. All those jobs which would be created and all the procurement from private companies.

State investment doesn't disappear into nowhere. If properly targeted it works in the domestic economy. And we don't have to 'borrow' it from anyone because we can create our own money. That is how all states with their own sovereign money provision themselves. But the finance industry doesn't like it because there's no profit in it for them..

M0nica

Dickens

How come TW ended up with so much debt?

Again - Macquarie... the debt was increased hugely under their ownership...

According to the BBC, ^"Thames Water's current debt amounts to about 80% of the value of the business, making it the most heavily indebted of England and Wales' water companies."^

Listen to this episode of the R4 programme, The Briefing Room www.bbc.co.uk/programmes/m001yxl5

When I first heard it, it had me shaking with rage. Essentially Macquarrie and the various Sovereign Wealth funds who bought it up, creamed off all the operating profits as dividends and borrowed to finance any capital investment.

For anyone wanting to understand the water industry and Thames Water in particular, this is essential listening.

I've known about that for ages, I read about it in the Financial Times.

I think it's extraordinary that practices like this are actually LEGAL. The world of finance is completely out of control and interested in only one thing. Enrichment.

I get so cross when people insist that we can't do without 'the wealthy' because they are 'wealth creators'. They 'create nothing much more than excessive wealth for themselves...

Regulations of Thames Water was certainly not tough enough.

But all these commenters calling for Marxist takeovers do not seem to realise that hideous side effects that come with authoritarian rule. Communism has never, ever at any place or at any time come without the effects we are now seeing for ourselves in the downfall of Assad in Syria.

Oppression, no freedom, rape, murder, imprisonment, lies and propaganda, desecration of lives and country, corruption, secrecy and fear.

“David is ignoring what has been said about TW. For a start, their largest shareholder has written off their shares. I posted that a day or two ago. (I think I even quoted it from the Financial Times) So 'investors' clearly don't have much expectation of getting much back...”

If is true that the largest shareholder has written off its investment it will have cut its losses and sold them to others. So nothing has changed, the market value of shares has halved over the last 5 yrs and now the debts are very close to the asset value of TW. In this situation TW cannot borrow money to continue funding water supply let alone improve it. Dividends were paid to shareholders to support share prices if they had not been paid shares would have fallen further and the ability to borrow would have been a crisis 5 yrs ago.

When water was privatized the assets were “given” to TW apparently without strings, Macquarie sold some off, what is left are TW assets owned by the current investors in TW. If the government decides to nationalize they have to “buy back” the assets.

It’s nonsense to say they will simply confiscate them without payment, that would put into question the whole creditworthiness of the UK, particularly the whole utility sector which all operates with private finance.

If for political reasons the government decides that water price rises should be less than needed to maintain and improve the service for an extended period it has to accept responsibility for deterioration in the service. Personally I think they should nationalize the industry, more likely they will arrange a subsidy in the way that rail services are paid for, to soften the blow of increased water costs.

Lilyflower

Regulations of Thames Water was certainly not tough enough.

But all these commenters calling for Marxist takeovers do not seem to realise that hideous side effects that come with authoritarian rule. Communism has never, ever at any place or at any time come without the effects we are now seeing for ourselves in the downfall of Assad in Syria.

Oppression, no freedom, rape, murder, imprisonment, lies and propaganda, desecration of lives and country, corruption, secrecy and fear.

Who is calling for a Marxist takeover Lilyflower? What even is a Marxist takeover in the context of the UK?

Please tell us what you think the future of Thames Water should be, as that’s what this thread is meant to be about?

What do you mean 'if it is true that the largest investor has written off their investment' David? Don't you read posts before replying.

I'll repost this, from the FT last May

Thames Water’s biggest shareholder has written off its investment in the utility in a sign of the escalating financial crisis at the UK’s largest water company.

A Singapore-registered subsidiary of Ontario Municipal Employees Retirement System, which holds a 31 per cent stake in Thames Water, said in accounts filed on Friday it would make “a full writedown of [its] investment and loan receivable with accrued interest”.

If the assets were 'given' to TW then they can 'give' them back...

According to the Wiki article the 10 regional water authorities were sold for an over all price of £7 billion. So TW paid less than £1 billion. in addition it had the water board's debts written off and was given a golden handshake.

The generous terms water companies were given on purchase are confirmed here :

The Thatcher government took a number of steps which were all calculated to boost the profitability of the privatised water companies, at the expense of either the taxpayer or the consumer.

The government wrote off all the debts of the water companies before privatisation, worth over £5 billion pounds (about 8 billion Euros/US dollars). In addition, it gave the companies a 'green dowry' of £1.6 billion pounds (about 2.6 billion Euros/US dollars).
The government also offered the companies for sale at a substantial discount, which has been assessed as equal to 22% of the undertakings' market value, measured as the difference between the issue price of the water companies' shares and the share price after the first week of trading.

The initial price regime, set as a political act before OFWAT was established, was also extremely generous. As a result the pre-tax profits of the ten sewerage and water companies rose by 147% between 1990/91 to 1997/98 with sewerage and water prices rising respectively by 42% and 36%. 4. The companies were given special exemption from paying profits taxes.

So, the private companies having been virtually given the assets you think we should buy them back?

“What do you mean 'if it is true that the largest investor has written off their investment' David? Don't you read posts before replying.”

Unlike many I don’t believe every opinion in the media, or especially on this site which I why I often use “if”. The fact that an investor has cut its losses is not important because others bought the shares

Investors have lent money to run TW because it was backed by the government just like Gilts or Bonds, nobody lends without collateral. What has happened in the past is gone and done with, there are no accusations of illegal activity as far as I am aware.

There is plenty of moral outrage which counts for nothing, companies have been allowed to exploit the assets, which is what companies do, they are loyal to shareholders not customers.

The UK will have big problems if any attempt is made to default on TW loans.

I don’t follow you David. Surely the money has been invested in the company, so why would the UK (by which I assume you mean the government) be liable to return that investment if the company folds?

Casdon

I don’t follow you David. Surely the money has been invested in the company, so why would the UK (by which I assume you mean the government) be liable to return that investment if the company folds?

When a company goes bust the assets are sold off, if TW has assets that’s what will happen.

David49

Casdon

I don’t follow you David. Surely the money has been invested in the company, so why would the UK (by which I assume you mean the government) be liable to return that investment if the company folds?

When a company goes bust the assets are sold off, if TW has assets that’s what will happen.

TW's assets were more or less handed to the original private company that bought the business on a plate.

Let's look at this another way. Let's deduct the value of TW's debts from the 'value' of the assets, plus the future cost of rectifying the deplorable state that the business has reduced its infrastructure to (which cannot possibly be covered by increased water charges to the consumer) and tell me how much that company is now 'worth'.

Perhaps we could also factor in the theoretical costs of fines for their many,many breaches of the regulations?

As far as I can see, the only 'asset' that the company has is its captive customer base.

If you look at Company Check you will see that Thames Water Utilities has assets of £2141 billion and liabilities of over £3000 billion at present, the balance is made up by cash and sundry debtors.

These are eye watering figures the assets and liabilities are real and make the amounts paid in dividends we all complain about, a very small amount in comparison.

Most of TW's investors have written down to £0 the value of their investment in the compny.

These include:
(UK) University Pensions Fund,
Ontario Municipal Employees Retirement System (Omers)
Abu Dhabi Wealth Fund
Queensland Investment Corporation

This just leaves the following shareholders still naive enough to believe that this basket case company is other than bankrupt
Infinity Investments SA, ( a subsidiary of the the Abu Dhabi Investment Authority)
British Columbia Investment Management Corporation, (the provider of investment management services to British Columbia's public sector)
Hermes GPE. (the firm specialises in funds of funds and co-investments and operates across global private markets.)

Queensland Investment Corporation
Queensland Government owned.
Their taxpayers won't be very impressed. Perhaps they'd have been better spending that money on flood defences in their own State.

Lilyflower

Regulations of Thames Water was certainly not tough enough.

But all these commenters calling for Marxist takeovers do not seem to realise that hideous side effects that come with authoritarian rule. Communism has never, ever at any place or at any time come without the effects we are now seeing for ourselves in the downfall of Assad in Syria.

Oppression, no freedom, rape, murder, imprisonment, lies and propaganda, desecration of lives and country, corruption, secrecy and fear.

Marxist takeovers ???

Oppression, no freedom, rape, murder, imprisonment, lies and propaganda, desecration of lives and country, corruption, secrecy and fear.

We're talking about re-nationalising the water industry, not a Communist or dictatorship uprising...

There's something in between free-market libertarianism and deep-state Communism - a mixed economy. Where you have healthy competitive Capitalism and well-funded state institutions.

Ask Norway. And other Nordic countries.

Flipping heck!

In the meantime in the real world, several other companies are offering a takeover of TW, also a government “bailout” is being discussed, even a temporary nationalization while finances are sorted out.
Regrettably no actual mention of full nationalization yet.

I beleive that all public utilities should be publicly owned.

The biggest problem with public ownership is the way governments interfere with the operation of the utilities for political reasons.

Many of the problems of the nationalised iron & steel, rail, and coal industries were caused by the government interfering in business decisions so that modernisation could not take place and loss making plants were kept operating because the workforce were Labour voters and the government did not want to risk seaats, and the unions had too much power because they financed the Labour party.

I was fortunate enough to work for British Gas in its publicly owned days, and the first decade of privitisation, and thanks to the quality of the board directors, especially the Chairman, plus there were no gas operating sites where the votes of workers were sufficient to swing seats, it was left to operate efficiently and well. I doubt if the conversion from coal gas to natural gas would have happened the way it did, if there had been regular government interference.

The government interference came, ironically, with privitisation, and the Conservative governments obsession with market forces and the need for competition.

The North Sea Gas industry was new and not saddled with an existing outdated infrastructure and workforce, so had a much easier task, compared to coal or steel. The local gasworks along with rail yards and brewery were all leveled and replace with business units.

The UK had a North Sea windfall that should have been used to modernize infrastructure but it wasn’t, there was far more political gain in giveaways to voters. Thatcher broke union power, their influence was minimal, Blair did nothing to change that policy, just a relentless drive for deregulation and privatization.

@David and MOnica.

I think we're more or less singing from the same song book, even though we might have slightly different slants on it. 😀

David49

The North Sea Gas industry was new and not saddled with an existing outdated infrastructure and workforce, so had a much easier task, compared to coal or steel. The local gasworks along with rail yards and brewery were all leveled and replace with business units.

The UK had a North Sea windfall that should have been used to modernize infrastructure but it wasn’t, there was far more political gain in giveaways to voters. Thatcher broke union power, their influence was minimal, Blair did nothing to change that policy, just a relentless drive for deregulation and privatization.

The irony is Norway was sensible and set up the world's Sovereign Wealth fund, which is mandate dto do all its investing overseas so as not to damage the home economy. As a result Norway has expanded, inproved its transport network, got good pensions.

Unfortunately, there are always unintended consequences. Other countries with small economies and (usually) energy wealth and they too have set up Sovereign Wealth funds - countries like Qa'atar, Abu Dhabi, British Columbia Investment fund, Queensland Investment fund - and of course they invest with only their own financial interests and their country in mind.

And we all know what effect that has had on the water industry in the UK, especially Thames Water.