Society

Thames Water is privately owned by a consortium of institutional investors – primarily pension funds and sovereign wealth funds. About 80% is owned by

• The Ontario Municipal Employees Retirement System, a Canadian pension fund that holds around 32% of Thames Water’s shares.
• Universities Superannuation Scheme – a UK pension scheme for university staff that holds around 20% of Thames Water’s shares.
• Infinity Investments, which is a subsidiary of the Abu Dhabi Investment Authority, that holds around 10% of Thames Water’s shares.
• British Columbia Investment Management Corporation, a Canadian investment manager that holds around 9% of Thames Water’s shares.
• China Investment Corporation, a sovereign wealth fund from China that holds around 9% of Thames Water’s shares.

There are also bond holders, who have lent money to the company. The publicly available information on Thames Water’s creditors is that its class A bondholders, hold about £12bn in debt and include Abrdn, Apollo Global Management, and Elliott Investment Management. Their status as class A debt holders comes from the terms of the £3bn loan approved by the Court on 17 February.

While Thames Water is privately owned, it is a regulated utility company with specific licensing requirements and a special administration regime in place. The Water Services Regulation Authority, or Ofwat, is the body responsible for the economic regulation of the privatised water and sewerage industry in England and Wales.

Ofwat grants Thames Water the legal right to operate, sets price limits, monitors performance to check whether Thames Water is meeting standards for water quality, customer service, and infrastructure. If Thames Water fails to meet these license requirements, Ofwat can take action, including fines or even revoking the license.

Beyond that, as a supplier of essential services, Thames Water is subject to what is called a Special Administration Regime. If the company is in serious trouble, the government can step in and appoint special administrators.

All of which raises the question of the possible consequences that the law allows if Ofwat was to revoke Thames Water’s licence and the government stepped in and appointed special administrators? Specifically, what rights if any would the investors and bondholders have?

First, Ofwat has never revoked a water company’s license. If it were to decide to do so it would have to cite repeated breaches of environmental regulations such as massive sewage spills. These have already occurred with record fines.

The £3 billion restructuring plan in the form of new bonds to that value gives the bondholders what is called super-senior status, but only applies to the new bonds approved by the High Court. The money comes in two tranches, half now and the rest through to 2026. The effect is to give liquidity to Thames Water, but a point will come when the bond holders will either be content to roll over their bonds or they will want their money.

So why did the bondholders agree to lend more money? Part of the reason is the whopping 9.75% interest rate on the bonds and the fact that they have a short maturity period of two and a half years.

So watch this space, or more particularly watch January 2027 when those bonds mature.

How could it play out? A lot depends on Thames Water’s environmental record going forward. With huge financial pressure the temptation to cut corners will be all the greater. And then there are still the bonds that were issued before the latest issue. Some of those will be coming up, I assume. And what of the investors? What of the Ontario Municipal Employees and what of the UK university staff who might want to have a say in whether the funds divest and whether they divest now or further down the line.

Update June 2025: Ofwat Grows Teeth

Well, that didn’t take long. Things moved on after the agreement in February, and in June bondholders and private investors proposed a broader £5 billion package made up of £3 billion in cash, £2 billion in new loans and a 20% debt write-off. They also set conditions on environmental compliance and restructuring oversight. What that meant was that the bondholders wanted the water regulator Ofwat to back off and be lenient about the sewage spills.

It was not to be. Ofwat levied a £123 million fine on Thames Water for discharging sewage and for infractions in issuing dividends and bonuses given the environmental record.

The big deal about the fine was that it was to be borne by the shareholders and not customers. And Ofwat asked for new laws making the executive personally liable for environmental breaches.

Currently, £1.5 billion of the bond approved by the court has been drawn. And the £2 billion loan is still being reviewed. The only question is how far Thames Water is from collapse.

Runaway consumerism, pollution, and the human causes of climate change are problems that we humans seem inadequate to face and deal with.

We have this huge engine that we have made out of multiple pieces, and we don’t know how to apply the brakes.

Here’s a thought though. What if we stop seeing these as problems and instead see them as roads pointing to a solution even if the road is unclear?

The day I read that gross domestic product doesn’t mean how much we have produced, but how much we have spent on what we have produced I realised that the only meaningful engine in the economy is the consumer.

If we want to change society in the face of the climate crisis, we really have to stop consuming. We have to cut it by a huge amount, because if we don’t – well we know where that road leads.

But if we suddenly stop consuming overnight, the centripetal force would fling gobs and swathes of people off into space. It would be catastrophic.

Catastrophic of course for the companies that produce things, but also for everybody who would get caught up in it.

It would hit the people who would no longer have jobs. It would hit people who would no longer have access to all kinds of things. I mean you name it and it would cause problems if production didn’t exist.

Take something simple like water. How would people access it if nobody was making taps or washers or pipes any more.

So we can’t just stop consuming and say that that’s the solution.

But in the long term and even in the shorter term it has to be the solution and that is why we should all thank the climate crisis because it’s pointing exactly towards that.

And it’s pointing as exactly towards that at the same time is that we human beings with our desires and needs are getting slightly sick of this ever expanding drive and push to consume more.

We are growing out of consumerism and you can tell that is the case because people are pushing faster and faster for more and more distractions, and none of them are hitting the spot for very long.

So we are on a path that is narrowing from one direction and another, and we should be pleased because it’s pointing the way.

The Financial Conduct Authority published a report on 16th January looking at mortgages among other things, and saying that the FCA will

Begin simplifying responsible lending and advice rules for mortgages, supporting home ownership and opening a discussion on the balance between access to lending and levels of defaults.

The BBC reported that:

Until now strict rules mean lenders have to be sure that people can repay mortgages, testing them for higher rates of interest. Other rules were also imposed on mortgage providers after the financial crisis almost 20 years ago exposed reckless lending and put major financial institutions at risk. The FCA points to current low numbers of borrowers missing repayments, or having homes repossessed, as evidence of questioning whether the rules are too strict.

The reason for the low number of borrowers missing repayments is the current strict set of rules. If the intention is to keep defaults at a low level that is a reason for keeping the rules. It is not a reason for easing the rules.

It raises that question of what the FCA think is an acceptable number of defaulting borrowers. Is it higher than the current low number? Can that be a desired outcome?

I was in my late teens the first time I went to Amsterdam and walking around the city centre, around the canals and looking at the buildings, I fell in love. Even then I knew that part of the reason was that it was so easy to detect the care that had been put into the buildings, each individual one, when they were built, but also that any craftsman could have built the buildings. And that singled them out from modern buildings where the techniques and the organisation seemed to be, or are, foreign to the common or garden craftsman.

For example, if a hundred men today sat down and put themselves to working out how to build one of those houses in Amsterdam, I’m sure that they could gather the materials, read the references and work out how to build such a house and actually do it. Whereas if a hundred men sat down and looked at some modern buildings, they’d be lost. The techniques are somehow very removed from what an individual can do.

Anyway, that was then and then much later on I heard car mechanics and car owners complaining that the electronics in a modern car were now a black box, meaning that they were unobtainable. The insides of them, the construction of them were unobtainable. If they went wrong you simply sent back to the manufacturer to get another one.

In contrast, in years gone by any man who set his mind to it could learn the techniques of how a car works and they could rebuild a car. And I know the comparison between how to build a house in Amsterdam and how to rebuild a car is an analogy that stretches too thin quickly, but there is something about human size and human methods that unites them.

The fact is, as we all know, that we now live in a world where probably worldwide a few thousand people understand the code that runs basically the whole of our human systems. And outside of them, forget it, nobody knows.

And the point of this is that when we divorce ourselves from a feeling that the construction methods we use are of us, then we lose ownership, authorship and a sense of position relative to those things and we become effectively slaves because we don’t know how to do it.

‘We’ being the great mass of humanity. And I think that’s wrong. I think the great mass of humanity should be able to put together the techniques and the means to build the things with which we occupy our lives.

But that is not the turn we took.