"A very high bar and we are not close to it"
The business news that matters
Hello and welcome to the latest Off to Lunch…
The owners of Thames Water have agreed to put another £750 million into the business. This cash injection comes amid concerns about whether the company can afford to upgrade water and sewage infrastructure in the south-east and repay its £14 billion of debt. These concerns have prompted the government to look at whether it might need to nationalise Thames Water through a special administration.
The £750 million injection is short of the £1 billion that Thames Water was thought to be looking for but the company said its shareholders “have also acknowledged that delivery of the turnaround plan will require the provision of further equity support”. This “further equity support” that Thames Water needs is currently estimated to be £2.5 billion between 2025 and 2030.
Cathryn Ross, the interim co-chief executive of Thames Water, said this morning that there is a “very, very high bar” for the government to nationalise a company and that Thames Water is “not close” to this bar. Speaking on BBC Radio 4’s Today programme, she said:
“You have to remember that all utility companies operate under a regime where this is nuclear option, this very extreme safeguard, called special administration. There is a very, very high bar before the government puts any company into special administration. The company basically has to be insolvent…
“We have £4.4 billion of capital sitting there. We can draw down on that. We are absolutely not close to that trigger. A special administration regime is something that everybody recognises there is a very high bar on triggering that. It is an option that the government has but there is a very high bar and we are not close to it.”
As a reminder, the largest shareholders in Thames Water are Canada’s Ontario Municipal Employees Retirement System, the Universities Superannuation Scheme, the Abu Dhabi sovereign wealth fund, China’s sovereign wealth fund and Hermes, which manages the BT pension fund.
Thames Water is the largest water company in England. It provides water to 10 million customers in the south-east as well as sewage and waste-water treatment to 15 million.
There has been a mixed reaction to the announcement from the company this morning…
This is Jim McMahon, the shadow secretary of state for environment, food and rural affairs…
And this is singer-turned-water-campaigner Fergal Sharkey…
However, the price of Thames Water’s bonds has risen today, suggesting those that hold the company’s debt have welcomed the commitment from shareholders. A £400 million Thames Water bond is up 8p to 68p today according to data from Bloomberg, although this is still below where it was two weeks ago.
You can read more from Bloomberg on Thames Water’s bonds here and the company’s announcement on the investment from shareholders here
Other stories that matter…
1. While the UK worries about inflation, China has the opposite problem. Given that China exports goods around the world, this could be a problem for other economies soon as well. Producer prices fell by 5.4 per cent year-on-year in June in China according to new data. This was higher than the 4.6 per cent drop in May and the 5 per cent drop forecast by economists. It is the biggest drop since 2015. The producer price index is a measure of how much factories charge for the goods they manufacture. The consumer price index was flat year-on-year but prices fell 0.2 per cent month-on-month. You can find more on this data in a Reuters story here
2. BT has confirmed that Philip Jansen, its chief executive, has “informed the board that at an appropriate moment over the next 12 months he intends to step down from his role”. Adam Crozier, the chairman of BT, says in the statement that Jansen has “done an excellent job” and the board is “fully supportive of our long-term strategy which he and his team are pursuing”. Jansen said he is “proud of what we’ve achieved to date”. The BT boss has accelerated the company’s roll-out of fibre broadband across the UK and agreed to spin-out BT Sport into a new joint venture with Warner Bros Discovery, a deal that could eventually be worth more than £600 million to BT. However, last month Jansen was given a verbal warning by Ofcom, the telecoms regulator, for saying that BT’s roll-out of fibre broadband will “end in tears” for rivals. Reports over the weekends suggested that Jansen is “desperate to leave” BT. You can find BT’s statement on Jansen’s departure here and the background to this story in our Sunday press review here.
3. The Guardian has published a list of more than 50 MPs who own shares in companies, saying that these holdings raise questions about potential conflicts of interest. MPs have to declare shareholdings worth more than £70,000 and the majority of those reported by The Guardian are below this. For context, members of the House and Senate in the US have to declare any trade over $1,000. You can find The Guardian piece here. One shareholding The Guardian highlights is Andrea Leadsom owning shares in Barclays while she was a member of the treasury select committee and questioning Bob Diamond, who was then the chief executive of the bank. Leadsom is regarded to have given Diamond a tough time during the hearing. Story here
4. The Issa brothers have invested £30 million into a Glasgow-based company developing hydrogen-powered lorries. HVS wants to start production of its hydrogen lorries in 2026 and is looking for a site for a factory. The Issa brothers also own supermarket chain Asda. Story by The Times here
5. UK assets are the cheapest in the world according to research by Morgan Stanley analysts. Shares in UK companies and their bonds offer more value than other stock markets and commodities around the world, the analysts say. This is because concerns around the UK economy have led to a discount being applied to its assets. Bloomberg story here
And finally…
From Sunderland to SW19. I was lucky enough to be at Wimbledon last week following my trip to the north-east. My wife and I had seats on court one after winning tickets in the annual ballot. Wimbledon really is a unique sporting venue and we had a brilliant time. However, one thought about the future - can the All England Lawn Tennis and Croquet Club find a way to reduce the number of empty seats as the day goes on? We saw Jannik Sinner, the men's number eight seed, in the evening match for what was a high-quality and entertaining affair. Yet court one was barely half-full. This is despite the fact that there were plenty of people outside the stadium who had ground passes for the day, and people who weren’t at Wimbledon at all, who surely would have taken those seats. Wimbledon has a ticket resale policy already and people can buy seats as others swipe out when they leave the ground. But could this initiative be ramped up? Modern technology and phone-based tickets surely provide an opportunity…
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Best
Graham