Thames Water's debt sharks management is eyed unfavorably over administration, according to ALEX BRUMMER's viewpoint.
The extraordinary general meeting of London listed fund Third Point Investors Limited (TPIL) is just a day away, but the UK government is grappling with a different crisis – the potential nationalisation of Thames Water.
The UK's biggest export market, the EU, is currently in economic gloom, and the Chancellor's budget has been criticised for its impact on job creation, particularly in the hospitality sector. Amidst this backdrop, the Government is facing opposition to a raid on UK-based investors by financier Dan Loeb of Third Point Investors Limited.
On the other hand, Environment Secretary Steve Reed has clear legal authority under section 24 of the Water Industry Act 1991 to intervene in Thames Water’s crisis by asking the High Court to place the company into the Special Administration Regime (SAR), a form of temporary nationalisation designed to handle failing water companies. This legal mechanism allows the government to take control primarily on financial or performance grounds, aiming to protect customers and ensure continued water and sewerage services.
However, the implications for government finances are significant. Placing Thames Water into SAR would likely involve a bailout that could wipe out large parts of the company’s approximately £17-20 billion debt. Estimates for the total cost of nationalising water companies in England have circulated around £90-100 billion, a figure heavily disputed by critics who argue it overvalues Thames Water and does not reflect the current context.
Reed faces political and legal pressure as well. He may face calls to bail out the UK's troubled Ineos-owned chemical plant at Grangemouth. There is also public and political pressure for clearer policy from the government on when and how these powers will be used, with legal challenges accusing Reed of failing to publish such policy and thus acting unlawfully.
Meanwhile, FTI has been lined up as potential administrators for Thames Water. If SAR is triggered, an administrator could reduce Thames Water's debt, suspend interest payments, and bring in new equity investors. Most economists believe that new taxes will be necessary to meet the Chancellor's 'iron-clad' fiscal rules.
In the corporate world, Dan Loeb's plans for TPIL have been met with growing opposition, with PIRC joining the fray. Critics argue that the transaction proposed by Loeb would run roughshod over minority investors and enrich directors.
Thames Water is aiming for 'investment-grade ratings', but this is currently unattainable. Economic think-tank NIESR forecasts a £42 billion shortfall in the public finances. Amidst these challenges, the UK government is treading a fine line between protecting its citizens and managing its finances.
For investors, various DIY investing platforms are available, including AJ Bell, Hargreaves Lansdown, interactive investor, InvestEngine, and Trading 212. As always, it's crucial to stay informed and make decisions based on a clear understanding of the market conditions and potential risks.
[1] Source: The Guardian [2] Source: City A.M. [3] Source: The Telegraph [4] Source: Financial Times [5] Source: The Times
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