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US industrialist J Paul Getty said, “If you’re borrowing $100 from a bank, that’s your problem. If you’re borrowing $100 million from a bank, that’s your problem.” Thames may soon default on some of its £19 billion debt, but that’s clearly a utility problem.
But we are where we are, and it is abominable, and there are few alternatives to help the company continue to operate and regain economic stability.
One is that the government intervene and take over it. The second is that bondholders will personally restructure it and agree to the new owner. They may even become owners themselves, via debt swaps and fresh investments.
Fortunately, for the government, despite all the financial difficulties and public scandals, there are still some potential bidders. Both Hong Kong’s CK Infrastructure and private equity group KKR have made preliminary bids to take over the utility if it can restructure its debt. Hope will be spring forever in the financial markets and all prices.
This is a “market solution” preferred by most Thames Water’s debt, infrastructure investors and miscellaneous crew holders of hedge funds. If around £6 billion can be cut from net debt, the ship can sail under the new ownership and investment grade flag. The judge agreed to have them try after being guaranteed to bear the funding costs.
Getty’s dict fails with Thames water. Because for that to become a lender’s problem, the borrower must be able to leave. To show why this doesn’t work for utility purposes, simply turn on the tap or flush the toilet. Not only will it need to operate without interruption, it will also need to raise new debts in the future. The UK water sector is planning to invest £108 billion over the next five years.
Margaret Thatcher should have thought of it when the sector was privatized in 1989, but it took decades before its full meaning became clear. Apart from being reverted to public ownership, Thames water has no choice, but you can continue to borrow and hold it.
john.gapper@ft.com
