From Breakingviews - UK water meltdown resurrects bank crisis dilemmas
Thames Water operatives are seen at a water distribution site in Hampstead in London, Britain, March 5, 2018. REUTERS/Toby Melville
The borrowing splurge was enabled through securitisation structures. As well as borrowing at the UK water company, shareholders geared up the parent groups, which in turn relied on dividends from the utility. In March 2022 the sector’s average borrowing was 69% of its regulatory capital value , a metric used to determine the value of its assets, with total debt of 60.6 billion pounds. Under Macquarie’sYet despite their stable revenues, the water companies cannot quickly cut borrowing.
The best solution for UK Prime Minister Rishi Sunak would be regulatory tweaks that don’t require hard cash. Ofwat could allow Thames to hike prices, delay fines, and give it more time to meet investment targets. That might make it easier for the current shareholders, or new ones, to put more money in. But higher bills are politically toxic ahead of an election in 2024.
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