No government wants water companies with long term debt requirements on its balance sheet

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Water is in the news, but not only because of flooding but also through the travails of Thames Water, one of the eleven regional monopoly regulated water and sewerage companies (WASC) in England and Wales, like our own Yorkshire Water.

These companies were set up as privatised utilities in 1989. Ofwat regulates their performance and behaviour as an economic regulator through league tables of comparators and five year business plans. It is Ofwat’s job to ensure a well run WASC can access the necessary finance through an investment grade credit rating, thereby appealing to international investors in the corporate bond and equity markets.

The industry suffered for many years as a nationalised industry by being down the pecking order for investment against the NHS, education et al, as would still be the case today given the size of government borrowing post-Covid. All water companies have high levels of typically long term debt. Unfortunately post-Covid and the onset of significant inflation, interest rates have risen sharply in a way that was unforeseen.

 

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