Shareholders sucked billions of pounds out of privatised utility
THAMES Water’s shareholders have sucked out billions of pounds from the company over the past two decades and piled the utility with huge debts.
Australian bank Macquarie and a string of offshore pension funds bought Thames in 2006 and controlled the business as a consortium for a decade
Over that period, they took out about £2.7bn in dividends using a complex financial structure ultimately underpinned by money paid into Thames Water by bill payers.
In one year alone, Thames paid a £656m dividend – pushing the group into the red. During the most prolific periods, shareholders sucked out another £1.3bn between 2010 and 2014.
In the final year of ownership, the Macquarie-led consortium shared in a further £157m windfall as debts rose four-fold to £10bn from £2.3bn.
Thames currently has net debts of around £14bn.
The payouts rankled as rates for bill payers surged to pay for fixing faulty pipes and prevent sewage flooding into the Thames.
Critics said the dividend payments should have been used to fix Thames’s creaking infrastructure.
Thames’s previous owner, the German utility giant RWE, was also criticised for drawing large dividends, but these were typically of a lower size.
Thames Water was privatised by the government in 1989 and floated on the stock market, allowing Britons to buy shares in the company.
However, after it was acquired by RWE in 2001, Thames was placed into a complex web of companies which became heavily indebted when the
Macquarie-led group took control. Known as a “whole business securitisation” scheme, the Macquarie-led consortium effectively ringfenced Thames Water and set up a new holding company above it called “Kemble Water” to borrow huge sums of money.
Kemble would borrow money from third party investors using the steady income stream from billpayers as security. Some of these borrowings would be used to fuel the huge dividend payouts.
Macquarie’s infrastructure funds owned 47pc of Kemble, with the balance owned by Australian, Canadian and Dutch pension funds.
Money that was earned by the ringfenced Thames Water business would then flow up the chain to Kemble, helping to service bondholders and shareholders.
The complex financial engineering remains in place to this day although the current shareholders do not receive dividends.
Any dividends paid up to Kemble are currently used to repay interest on debt.
The current shareholders include Canadian pension fund Omers, British university lecturers pension scheme USS and BT Pension Scheme manager Hermes.
None of these shareholders has taken a dividend since they bought the business in 2017.