UK water companies are drowning in £65bn of debt with cost of redemptions set to rise due to inflation (but still paying shareholders huge dividends)
Britain’s beleaguered water sector is creaking under the weight of £65bn of debt that inflation could push further.
The staggering combined mountain of debt accumulated by the UK’s 12 water companies means huge amounts of money are being spent on interest payments – money that could be spent cleaning up polluted rivers or repairing leaking pipes.
And they threaten to go deeper into the red as much of the debt is linked to inflation, which has risen sharply.
Concerns about the financial health of water companies – many of which are foreign-owned – have been heightened by fears that Thames Water, which has 15 million customers, is on the brink of collapse.
This follows the sudden departure of CEO Sarah Bentley, who stepped down on Tuesday after just three years in office.
Exploited: The staggering mountain of debt accumulated by the UK’s 12 water companies means cash is spent on interest payments and not on cleaning up polluted rivers or repairing leaky pipes
The company, which is in talks to secure additional financing, did not provide an explanation for Bentley’s departure.
Last year she was paid more than £2 million despite criticism for dumping sewage into waterways and introducing a garden hose ban.
The government is standing by to deal with any consequences of the possible failure of the company, which may include temporarily nationalizing the company.
Emergency talks have been held between Defra – the Department of the Environment – and industry regulator Ofwat to consider options for Britain’s largest water supplier if it can’t raise enough money.
There has been growing concern over the financial health of Thames Water over the past 12 months, after debts rose to around £14bn, far greater than any other supplier.
Last year it brought in £2.2bn in revenue but posted a loss of nearly £1bn.
Trade and Commerce Minister Kemi Badenoch said yesterday she was “extremely concerned” and that the government should “ensure that Thames Water survives as an entity”.
Thames Water yesterday tried to appease investors by saying it had a ‘strong liquidity position’, with £4.4bn in cash.
It also highlighted a £500 million cash injection in March from its shareholders, including the state-backed China Investment Corporation and the Abu Dhabi Investment Authority.
But market experts warn that this is unlikely to make a dent in the mountain of debt. Thames Water is not alone in racking up huge debts in an industry privatized by Margaret Thatcher in 1989.
United Utilities and Severn Trent, both listed on the London Stock Exchange, have debts of £8.2bn and £7.16bn respectively.
They also recently handed shareholders a combined dividend of £562 million.
Other companies including Anglian Water, Southern Water and Yorkshire Water all have individual debts in excess of £5bn.
The privatization of the industry paved the way for foreign investors to take control of companies, collect billions in dividends and pile up debt.
Analysis by rating agency Moody’s last December found that more than half of the sector’s debt is linked to inflation, which has risen sharply since the loans were taken out.
“The water sector is more dependent on inflation-linked debt than other regulated UK networks such as power and gas,” Moody’s said.
Figures from last week showed inflation in the UK had remained stubbornly high – at 8.7 percent.
Martin Young, a utilities analyst at international bank and asset manager Investec, said the challenges facing the highly indebted water companies are “grim.”
A government spokesperson said yesterday: ‘The sector is financially resilient. Ofwat continues to monitor the financial position of all major water and wastewater companies.’