Pension funds face challenges as UK utility struggles with debt

Funds entangled in the financial woes of Thames Water

Pension funds face challenges as UK utility struggles with debt

London's water and sewage utility company, Thames Water, has become a concern for two Canadian pension funds as they grapple with the company's mounting debt crisis. The Financial Times reported on that discussions are under way between Thames Water and the UK government regarding a potential nationalization of the company, which currently carries a debt of $23.4 billion.

The Ontario Municipal Employees Retirement System (OMERS) holds the largest external stake in Thames Water, with a 31.777% ownership. Meanwhile, B.C. Investment Management Corp. (BCIMC), possesses an 8.706% stake.  

BCIMC's involvement with Thames Water traces back to 2006 when it was part of the Kemble Water Ltd. consortium, led by Australian investment bank Macquarie, that acquired Thames Water from Germany's RWE AG for £8 billion.

Thames Water attempted to downplay the situation in a statement released to the London Stock Exchange (LSE) on Wednesday, referring to it as "press speculation". OMERS and BCIMC declined to comment, directing inquiries to the LSE statement. The statement emphasized that the company possessed £7.4 billion in cash, received £841 million in new funding from shareholders in March, “and is continuing to work constructively with its shareholders”.  

According to a report by the Financial Times, shareholders pledged over $2.5 billion a year ago to support Thames Water.

BCIMC's latest investment inventory, dated March 31, 2022, revealed Thames Water as one of the 27 companies within its infrastructure and renewable resources portfolio, accounting for 9.5% of BCIMC's total assets under management of $233 billion.

The Water Services Regulation Authority, known as Ofwat, expressed concerns about Thames Water and four other regional monopolies, labeling them as the "worst performing companies operationally”. In November, Ofwat ordered Thames Water to reimburse customers over $84 million for missing performance targets, while Southern Water was directed to return $50.5 million.

“The poorest performers, Thames Water and Southern Water, are consistently falling beneath our expectations and those of their customers,” Ofwat said.  

“They need to take immediate action to improve their performance and rebuild trust with the people they serve. We will continue to hold companies to account for their performance and we will make sure that they raise their game.”

Feargal Sharkey, an environmental campaigner and former lead singer of the Undertones, has been among the voices urging reform and action regarding Thames Water's operations. His concerns stem from his passion for fly-fishing and environmental preservation.

“We, the customers, have for 30 years already provided all of the funding necessary for water companies to comply with the law, something water companies confirm to Ofwat each and every year,” Sharkey said in a tweet.  

“Where’s our money gone? What has happened to it? When can we the customer have a refund?”