Today’s News 

The Universities Superannuation Scheme (USS), a significant investor in Thames Water, has drastically reduced the value of its stake by nearly 62%. This move has raised concerns about the financial stability of the U.K.’s largest water distributor. 

USS, a U.K. pension fund catering to over 500,000 university members, holds close to 20% of Thames Water’s parent company, Kemble Water, through an investment entity. In its latest financial disclosure, USS revealed that its stake in Kemble was valued at GBP 364.4 million (USD 460mn) in March 2023, a steep decline from GBP 955.8 million (USD 1,207mn) the previous year. 

This substantial 62% devaluation coincides with Thames Water’s plans to raise GBP 2.5 billion (USD 3.1bn) in new equity from shareholders, including pension and sovereign wealth funds. Additionally, the utility seeks to secure GBP 750 million (USD 947mn) already committed, contingent on specific conditions. 

The writedown is over twice the percentage of the devaluation made in 2022 by the Ontario Municipal Employees Retirement System (OMERS), which happens to be one of Canada’s largest public-sector pension funds and holds a significant position as Thames Water’s biggest investor. 

Tim Whittaker from Edhecinfra remarked that USS’s decision was “probably difficult but necessary” and “better late than never”. He said, “It’s obvious that the risks inherent in the business — but under-appreciated just a few years ago — are now being realised”. 

Thames Water is facing significant debt repayments exceeding GBP 1 billion (USD 1.2 bn) by the end of 2024. To manage these obligations, the company has appointed a new CEO Chris Weston and faces regulatory scrutiny over its financial situation and sewage treatment practices. 

The substantial devaluation of USS’s stake, approximately GBP 600 million (USD 757mn) year-on-year, marks the most substantial hit taken by the GBP 75 billion (USD 94bn) pension fund since it invested in Thames Water in 2017. 

The USS said in a statement to the Financial Times that the challenges facing Thames Water were the “manifestation of historic under-investment over multiple decades and, more recently, the significant financial impact of soaring energy prices and other inflationary cost pressures”. 

“However, we have given our backing to Thames Water’s latest business plan,” it said. 

The USS added: “While the value we place on our Thames investment may go up or down as part of our regular revaluations, we continue to view this as a long-term investment, in line with the long-term needs of the scheme. That is why we were willing to commit additional funds to the business in March this year and have shown willingness to commit more in the future.”  

In its financial accounts, Church Water, the USS investment entity, justified the stake’s value based on a “fair value” estimation, utilizing various factors including market trends and asset prospects. 

Meanwhile, another major investor in Thames Water, the Ontario Municipal Employees Retirement System (OMERS), declined to comment on USS’s valuation cut. Thames Water itself asserts it’s in a strong financial position, supported by shareholders committed to providing additional equity. 

Thames Water has undergone strategic repositioning and submitted a revised business plan for regulatory review to secure investments. It awaits a determination from the regulator by the end of 2024. 

Overall, the significant devaluation of USS’s stake in Thames Water underscores mounting concerns over the utility’s financial landscape and ongoing efforts to stabilize its position through new investments and strategic restructuring. 

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