Thames Water says it is working with regulator as analysts eye nationalisation
Could the Moody’s downgrade be the signal for Thames Water to enter a special administration regime – a form of temporary nationalisation for utilities?
That is the message from some analysts. Reuters reported that Satish Pulle, credit analyst at Seaport Global, said:
Almost certainly it will mean special administration for the company.
But Thames Water said it is “business as usual”, and that it is working with the regulator on how to refinance the regulated company, Thames Water Utilities Limited. A spokespeson said:
TWUL alerted Ofwat to the possibility of potential credit rating downgrades in April 2024 and continues to work with Ofwat to maintain the ongoing financial resilience of the business. Management is engaging with investors and its creditors and remains committed to seeking new equity funding and exploring all options to extend its liquidity runway.
Increasing our financial resilience and securing an investible PR24 determination is a critical priority for the business. In the meantime, it’s business as usual for our customers and our teams on the ground who will continue to supply our services and remain focused on the delivery of our turnaround plan.
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The rating downgrade for Thames Water could itself cause direct problems. Ofwat requires water companies to be rated as “investment grade” by two separate agencies, or else face greater oversight.
S&P, a rival to Moody’s, said this month that Thames Water could lose its investment-grade BBB- rating, because it “might not be able to maintain adequate liquidity”.
(For a comparison of the arcane ratings systems used by the big three rating agencies, Wikipedia has a very handy table.)
Moody’s also said it has a negative outlook on Thames Water’s rating. There are two reasons given for this:
(1) the final determination expected later this year would deter existing or new shareholders from providing sufficient additional equity during the next regulatory period to allow the company to deliver its investment programme;
(2) in the absence of a pathway to future equity support, existing lenders may be reluctant to provide the company with the required flexibility to improve its immediate liquidity runway by raising new debt.
