The UK’s Biggest Water Company Is Having Liquidity Issues

The UK’s Biggest Water Company Is Having Liquidity Issues
Daniel Johnston

5 months ago2 mins

What’s going on here?

The UK’s biggest water company might be going – ahem – under water.

What does this mean?

Thames Water is two years into an ambitious eight-year plan to plug leakages and reduce nasty sewage outflows into rivers. But instead of a pat on the back, it’s facing a report card showing that leakage rates are the highest in five years. And as if that’s not enough, Thames Water is already struggling with a whopping $17 billion debt pile. Add on the firm’s CEO deciding to call it quits this week, and that only added to worries about Thames Water’s financial stability, sending the price of one of its bonds to the lowest level ever. That panic’s got the UK government stepping in now too, holding emergency talks to discuss options – including temporarily nationalizing the business.

Thames Water bond sinks

Why should I care?

The bigger picture: Davy Jones’s ledger.

Thames Water’s problems aren’t just a drop in the ocean. They’re part of a tidal wave that could hit the whole sector. You see, Thames Water may be the most indebted, but it’s not the only one struggling to stay afloat: UK water companies are collectively sinking under nearly $80 billion in debt. And in a world of low interest rates, they might have been able to tread water – but with rates on the rise, they’re having a hard time. So, given the importance of water supply, and the fact that Thames Water’s collapse could pull other water companies down too, it’s no wonder the government's prepping to buoy things up.

UK water companies’ debt
Source: Bloomberg, Ofwat

Zooming out: Water safety.

The current plight of UK water companies aside, utility firms can actually serve as pretty reliable safe harbors in troubled times. They’re steady Eddies, after all – providing essential services, churning out predictable income, and usually paying steady dividends. So while they might not make a big splash with returns, they’re usually a good bet when things get choppy.



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