By Early losses for listed water companies accelerated as concerns about long term financial resilience across the industry have risen.
After largely shrugging off the crisis talks surrounding Thames Water yesterday, investors are reassessing the longer-term implications for other firms in the sector.
Shares in Severn Trent, Pennon and United Utilities have fallen back more steeply amid the focus on the costs looming for firms which are set to become under increasing pressure to meet environmental targets set by Ofwat.
Although their immediate financial situation is considered to be more stable compared to other companies, who have been red flagged by regulators for their high levels of debt and dividend payments, the scale of the mountain to climb in terms of the investment needed is sparking fresh concerns.
Arguably, publicly listed companies have fewer shadows to hide in when it comes to transparency about dividend payments than firms with more complicated investment structures.
However, as the next regulatory timeframe looms for the period 2025 to 2030, there is set to be much bigger demands from regulators on infrastructure improvements to reduce sewage spills, increase capacity, and meet net zero targets.
Capital expenditure will have to increase sharply as a result – United Utilities, Severn Trent and Pennon have already had to push up spending, but budgets will need to expand, and debt levels will rise as a result.
Meanwhile, emergency talks surrounding the future of Thames Water are continuing with no resolution yet in sight.
The government is standing by with a promise of a temporary takeover through a special administration regime, a process energy firm Bulb went through last year.
But Thames Water is a giant in the water industry, supplying 15 million households, and has a customer base ten times the size of Bulb’s.
So, it’s likely to prove more difficult to find a buyer, particularly given its £14 billion debt load. The big question is whether the company’s investors, including overseas pension and sovereign wealth funds, will be willing to stump up a promised financial lifeline of £1 billion.
Pouring more money into a financial black hole Thames Water appears to have dug is clearly an unwelcome prospect, with little hope of future returns given the huge infrastructure work needed to mend leaks and sewage discharges.
Big questions are now being raised about the potential precariousness of other water firms.
Ofwat had been monitoring Southern Water and Yorkshire Water, as well as Thames Water, given its concerns over their financial resilience.
In its 2022 annual report, it also flagged worries about Northumbrian Water and Portsmouth Water for having fallen far short of expectations when it came to the level of dividends paid given their relative financial resilience.
It’s no wonder waves of worry are now surrounding more firms who have been caught uptide, as the era of cheap money has been dammed and their debt payments have hurtled upwards.
Comments