Thames Water fears trigger wider utility bond sell-off

TURMOIL at Thames Water has triggered a wider sell-off in bonds across the utility industry as investors turn their attention to debt burdens at rivals.

The difference between yields on benchmark government bonds and those issued by Southern Water and Northumbrian Water have widened in recent weeks, reflecting growing nervousness about how risky the debt is.

The so-called “risk premium” on Southern Water Services bonds has widened by 13 basis points since March 19, while Northumbrian Water Finance’s bonds widened four basis points since March 22.

The moves mean the companies are lagging behind investment-grade rivals and may cause concern among investors that Thames Water’s problems could spread across the industry.

Bryn Jones, at Rathbones Group, told Bloomberg: “Not all UK water companies are set up like Thames but there’s a huge amount of read across.

“If the sector’s main player gets negatively impacted, then others and their spreads are going to get hit.”

A spokesman for Southern Water, which serves almost 5m people across Kent, Sussex, Hampshire and the Isle of Wight, said: “With a supportive shareholder which has injected more than £1.5bn of fresh equity into the group since 2021, we have a resilient financial position. Our two bond issues in recent months have raised £1bn, and were both over-subscribed – indicating a high degree of confidence among our institutional investors.”

Northumbrian Water, which serves more than 2m people in Northumberland, Tyne and Wear, Durham and parts of North Yorkshire, was also contacted for comment.

Thames Water is £18bn in debt and veering closer to potential nationalisation after its parent company, Kemble, defaulted on a £400m loan last week.

The company had been due to repay £190m to its lenders by the end of this month, but warned the deadline will be missed after shareholders refused to pump in more money. The crisis has fuelled fears that the struggling utility could collapse into administration.

The Telegraph has revealed its bosses are exploring a radical break-up plan.