![]() ![]() Under Macquarie’s (MQG.AX) ownership, which lasted from 2006 to 2016, Thames’ debt rose to over 80% of RCV. In March 2022 the sector’s average borrowing was 69% of its regulatory capital value (RCV), a metric used to determine the value of its assets, with total debt of 60.6 billion pounds. As well as borrowing at the UK water company, shareholders geared up the parent groups, which in turn relied on dividends from the utility. The borrowing splurge was enabled through securitisation structures. The regulator’s move to keep prices down also incentivised utilities to borrow more, in order to juice up returns. Because water regulator Ofwat assumed a given level of debt when setting the sector’s allowed returns on capital – and hence consumers’ bills – any extra borrowing on top of that would bring down the cost of capital, saving more for shareholders. But they were also debt-free, giving shareholders an easy way to make money. ![]() UK water companies were a poor choice for privatisation: they are natural monopolies, with limited competition and large investment needs, limiting scope for shareholder returns. Thames Water’s problems began in the 1980s. As governments found when trying to prop up the likes of Royal Bank of Scotland during the global financial crisis, it may have to choose between two bad options. ![]() The government may take over heavily indebted Thames Water, a hapless privately held utility unable to fund capital needs that may stretch to 10 billion pounds. LONDON, June 29 (Reuters Breakingviews) - The UK’s water crisis is resurrecting 2008-style dilemmas. ![]()
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