The crisis at Thames Water has stirred a wave of anxiety around the debt burdens of UK utilities. High leverage is endemic across England’s water sector – total debt stood at £54bn at the end of 2022 and is now around £60bn. Critics say excessive borrowing has helped to fund investor returns and an operating structure in which capital spending has been de-prioritised, increasing the risks that taxpayers will ultimately foot the bill for long-overdue infrastructure upgrades.
- Supportive policy environment
- Massive capital growth options
- Manageable debt
- Low risk of rating downgrade
- UK gas disposal incomplete
- Net finance costs up
The chief executive of regulator Ofwat is among those who noted that investors are growing wary of the water suppliers. This is hardly surprising, given that rising interest rates are going to make the job of debt servicing harder. It has also been reported that government ministers are concerned that the failure of Thames Water would curb foreign investment in UK infrastructure. In response, the stocks of the three listed water groups have all fallen in recent weeks – though it seems market jitters aren’t merely confined to that sub-sector.