Thames creditor losses will deter UK investment, warns bondholder

NATIONALISING Thames Water and forcing losses on creditors will deter investment in UK infrastructure, a key bondholder has warned.

A senior fund manager at Royal London Asset Management said that bringing the heavily indebted water company into public ownership could “risk contagion” to investment in other projects.

Shalin Shah said forcing Thames Water’s creditors to take losses risked angering investors at a time when Britain’s ageing infrastructure urgently needs private investment.

Mr Shah said the debacle “could unfortunately risk contagion to other infrastructure assets that are funded against similar regulation”. The money manager argued this would ultimately increase costs for consumers.

Mr Shah told Bloomberg: “Political risks remain heightened around the balance between maintaining affordability on customer bills and allowing higher returns that unlock much needed investment in the sector.” Royal London Asset Management is a major holder of bonds issued by Thames Water’s operating entity and parent company Kemble.

The warning comes as the Government faces increasing pressure to intervene to support Thames Water after Kemble failed to make an interest payment on a £400m loan last week. The troubled utility company has also warned that it will miss its deadline to repay £190m to lenders by the end of the month after shareholders refused to put more money into the business. Investors are locked in a standoff with regulator Ofwat over how much Thames can increase bills.

Thames Water, which serves 15 million customers in the south of England, is sitting on an £18bn debt pile, much of which was accrued by previous owner Macquarie.

The current cash crunch could force the Government to intervene and place Thames Water into special administration – a form of nationalisation – at huge cost to the taxpayer. It has fuelled concerns that losses could be forced on to holders of Thames Water’s debt.

Thames Water declined to comment.