Market reaction to recent Thames Water announcements & press coverage​

Market Insight

Key events

27th June
Thames Water CEO, Sarah Bentley, steps down which had not been expected by the market
28th JunePress including BBC and the FT articles indicated that Government ministers have discussed the potential for a temporary nationalisation of Thames Water
29th JuneMoody’s published a comment entitled “CEO resignation likely to increase scrutiny, but strong liquidity supports credit quality” in response to the ongoing situation but did not take any rating action
30th JuneOne of the largest Thames Water shareholders, Universities Superannuation Scheme indicated it would support a turnaround plan
30th JuneS&P put Thames Water’s Class A and B debt on credit watch with negative implications over uncertainties around the management transition and timing of the additional equity injection 

Market reaction

  • News surrounding Thames Water led to increases in its bond spreads, which are most pronounced at Thames HoldCo (Kemble) where spreads initially widened to +2,241 bps but have since tightened.
  • The impact on wider water and regulated utility sector spreads is relatively mild, with some modest spread widening seen at Opco level but mostly not out of line with a slight widening of iBoxx £ Utilities 10+ bond spreads over the same period. New issuance in recent days from Cadent and Heathrow implies robust demand for infrastructure credit.

Centrus view

The impact of recent news flow has been substantially limited to Thames Water and we expect that once clarity is provided on the timing of further equity injections that market conditions will revert.

History of recent water sector equity announcements

August 2021Southern Water received a £1bn equity injection from its majority shareholder to recapitalise the business and implement a more sustainable financing strategy
June 2022Thames Water pledged an equity injection of £500m and a further £1bn of equity by the end of the regulatory period, subject to further conditions
June 2023Yorkshire Water raised £500m from shareholders, this was part of £940m program agreed in October. Funds are to be used to repay intercompany loans and fix water spills after Ofwat investigation
Sources: Financial Times, Thames Water website and Bloomberg

For more information, please contact Adam MacDonald, Managing Director – Centrus