What Thames Water parent firm’s default means for customers

Thames Water’s parent company is set to default on key loans, as the embattled water firm struggles to pay back debts.

On Friday, Kemble Water Finance issued a formal notice of default to its bondholders, announcing that interest payments on a £400m bond due to debtors had not been paid.

The holding company, which is owned by Thames Water’s nine shareholders including Chinese state-owned firms and a unit of the Abu Dhabi Investment Authority, announced last week it intended to stop paying interest on these debts.

The crisis comes as the company is stuck in a stalemate with the Government and regulator Ofwat over paying dividends and the right to raise bills.

How much debt is Thames Water in?

The company has debts of around £15bn, according to the best available figures. Thames Water’s parent company is currently negotiating an extension on a separate £190m loan, from lenders including two Chinese state-owned banks. That amount is due to be repaid this month, but failure to repay the loan could result in administration.

What is the outlook for Thames Water’s business?

Market analysts have reacted negatively to news of a default, which has put even more pressure on the embattled utility company.

Andrew Lee, an analyst at KNG Securities, said that only a few hedge funds were currently trading the debt of the company, given its negative outlook.

He said: “This is clearly an ugly situation for bondholders and it seems it will only get worse.”

“Thames Water’s such a political football, especially in an election year, which creates a huge amount of uncertainty over how the situation will progress over the coming months.”

The outlook for the company is poor, with two credit agencies cutting the credit ratings on its debt and that of its holding company’s debt. Fitch Ratings has moved the debt of Kemble Water Finance deeper into junk ratings and said some form of default was “probable”, while Standard and Poor (S&P) lowered its rating of the utility’s bonds.

Will this impact Thames Water’s day-to-day operations?

In a word, no. The company has previously said that issues in its parent company will not have an impact on day-to-day operations, and will not impact service for customers.

If the company were to go bust, the utility firm would be taken into a Special Administration Scheme, which was previously used for energy supplier Bulb during the pandemic. Household supply will not be turned off, and customers will be kept updated if there are any changes to supplier.