So OMERS has written off Thames Water:
The Ontario Municipal Employees Retirement System (OMERS) has written off its entire investment in troubled British utility Thames Water, walking away from a stake once valued at well over $1-billion.
Thames Water has been struggling under the weight of more than £18-billion ($31-billion) of debt that has become more expensive with high interest rates. In late March, its shareholders – of which OMERS is the largest – refused to inject more money into the beleaguered company, casting doubt on its viability.
…
As of Dec. 31, 2021, OMERS had valued the part of its stake held through its Singapore subsidiary at £990-million ($1.7-billion).
The BBC adds:
When the company was privatised in 1989, it had no debt. But over the years it borrowed heavily and is currently £15.4bn in debt.
A large proportion of that was added when Macquarie, an Australian infrastructure bank, owned Thames Water, reaching over £10bn when the company was sold in 2017.
Macquarie said that it invested billions of pounds in upgrading Thames’s water and sewage infrastructure, but critics argue that it took billions of pounds out of the company in loans and dividends.
…
In March, Kemble shareholders halted a £500m down-payment on that promised cash injection when regulator Ofwat rejected plans to raise customer bills by 40% above inflation over the next five years.
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Throughout this crisis, Ofwat has insisted that Thames Water – despite its huge debts – generates £2bn a year in inflation-linked income, which might be attractive to someone.
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The challenges facing Thames Water are formidable. In Finsbury Park, north London, the company is replacing pipes laid when Queen Victoria was on the throne and the land above was fields. Today it is operating in – and under – built-up urban areas.One certainty Thames customers can surely bet on is that bills are going to rise.
By way of history:
Macquarie and its co-investors made their position clear from the start, hiking dividends in the first year of their operations, 2007, to £656m when profits were a fraction of that at £241m.
Over their 11 years of control, Macquarie and its co-investors paid out £2.8bn to shareholders, which is two-fifths of the total £7bn in dividends that Thames Water has paid between 1990 and 2022. The average yearly dividends paid during the Macquarie period were five times higher than those paid after it sold its final stake in 2017. The consortium that took over ownership of Thames Water in 2017 has not taken a dividend since, but the company has paid internal dividends – including £37m in the year to 31 March 2022.
… and eventually I got to the good part:
The leakage rate from Thames Water pipes is the highest for five years and the company will not meet its target to plug them this year, according to information released under freedom of information laws.
The company, which serves 15 million customers across London and Thames Valley, has to have regular meetings with an environment minister because it is considered to be lagging in its performance.
Details of letters released under freedom of information laws between the chief executive, Sarah Bentley, and Rebecca Pow, an environment minister, reveal that Thames is not fixing its leaks as it has promised.
Bentley told Pow: “Right now, we have the highest leakage rate since 2018. Consequently, we have already signalled to Ofwat that we are behind on our 2022/23 leakage performance and our target this year will now be very challenging to achieve.
… and the company itself says:
Every day we supply 2.6 billion litres of water, but not all of that gets to our customers. At the moment, almost 24% of the water we supply is lost through leakage – which is a combination of water lost on our pipes, water lost on customers’ pipes and an element of unmeasured consumption (46% of billed customers are unmeasured with 17% of individual customers having smart meters).
In 2022/23 we reduced leakage by 10.7%, calculated using a three-year average from the 2019/20 baseline. Unfortunately, like many other water companies 2022/23 was an exceptional year for severe and unprecedented weather conditions. Despite delivering 25% more activity in 2022/23 we fell short of our performance commitment to achieve a 14.1% reduction in leakage.
24% leakage rate! It took Montreal thirty years of neglect to reach 40%!
About 30 per cent of the water that flows through Montreal’s crumbling water-main network is lost due to leaks [as of 2016], an improvement from the early 2000s, when 40 per cent was being wasted. Though the city is spending millions to replace 54 kilometres of water mains annually, the rate remains high.
That’s about on par with Johannesburg:
The City of Johannesburg is running its finances poorly. The maintenance bill for water infrastructure is R2-billion ($105-million) per year, but only R1-billion ($52-million) is allocated. Maintenance needs are spiralling out of control. The City bills residents for rates, water, electricity, sewage and other services. However, the funds received are not ring-fenced. Other projects are competing for the same pot of money.
Because the infrastructure is ageing (for example, in the suburb of Parkwood, the infrastructure is older than 70 years), the pipes rust and break. When they break, they leak, sometimes releasing very large quantities of water, before they are repaired. When the City responds to requests by residents for repairs, the response, if it comes, is often too little and the job is poorly done. There is little oversight or accountability by the City to ensure the contractors have done the job correctly and the repairs often do not last long.
…
Of the non-revenue water, the leakage portion for Gauteng is half. In other words, for every four litres provided to Gauteng by Rand Water, one litre is wasted through leakage (the City’s fault) and one litre is either given away for free (public good), stolen (the public’s fault), or not accounted for (much harder to allocate blame). This means only half of what is provided can be charged for.
Toronto, by the way, does a little better:
A new study by the Residential and Civil Construction Association of Ontario (RCCAO) is highlighting just how much water goes to waste in Toronto every day.
The study, titled ‘Water Infrastructure in the 21st Century: Smart and Climate-Savvy Asset Management Policies,’ was completed by Tamer E. El-Diraby, a University of Toronto professor in the department of civil and mineral engineering.While Toronto’s water distribution network services approximately 3.6 million people, the study claims that, due to “leaky and broken pipes,” 10 to 15 per cent of that water leaks from pipes daily.
This means that the city could be wasting 103 million litres of water per day — enough to fill more than 15,000 Olympic swimming pools a year, or just over 40 a day.
However, in some areas, the leakage rate could be far higher, says RCCAO.
“Reports by consultants who conducted actual assessments show that rates in Ontario could be as high as nearly 40 per cent. One analysis for the Town of Smiths Falls estimated that rates between 2003 and 2019 ranged between 41 per cent and 67 per cent,” said RCCAO.
One of the very few fiscally responsible things done in Toronto over the past quarter century was the price hike for water in the mid-2000s (?). This served to provide adequate funding for water services, while allowing those square-jawed defenders of fiscal conservatism to pretend that taxes hadn’t gone up.
But anyway, it seems like there’s a good chance that Thames Water will be nationalized, with massive losses to bondholders, price hikes for consumers and vast expense to taxpayers. I look forward to a public inquiry on this mess: financial porn on an epic scale! I am stocking up on popcorn already.
Here’s my hypothesis:
- All the various owners since privatization neglected capital maintenance, because that’s both expensive and boring.
- Macquarie stripped the company of every nickel that wasn’t nailed down and borrowed like crazy to pay out more
- OMERS et al. grossly overpaid for the company in the belief that the regulators would bail them out by allowing mind-boggling fee hikes
- They didn’t.
- This was all allowed to happen because Thames Water is owned by private equity; it didn’t have common equity prices approaching pennies (and giving unpleasant signals to the bond guys), it didn’t have an army of analysts poring over its books and reports trying to make themselves a nickel, all it had was private equity’s projections, full stop
- The purpose of private equity is to lie to your clients
As I say, it’s a hypothesis. Prove me wrong!
OMERS has a lot to answer for. OMERS is one of the investment outfits I admire: because they have a single captive client, they don’t need to have any salesmen on staff – this changes the culture; they can do their hiring and firing based solely on performance. But this certainly doesn’t make them perfect and I will be most interested in learning more details about how a 1.7-billion-dollars-odd got vaporized. In infrastructure. A water utility. In a mature OECD urban market, for God’s sake.
Update, 2024-5-18: This, from the Guardian:
The water company is now racing to avoid a multibillion-pound taxpayer-backed bailout after its parent company, Kemble, defaulted on its debt, raising fears that the company could face a significant restructure or even collapse.
Thames could be placed into special administration, which would result in the government stepping in and temporarily renationalising the company. This outcome would probably fuel critics of the Conservative government who argue the water company’s plight represents the failure of Margaret Thatcher’s privatisation agenda.
The Guardian revealed last month that under radical plans being drawn up in Whitehall, codenamed Project Timber, ministers would turn Britain’s biggest water company into a publicly owned arm’s-length body.
The plans, overseen by Defra and the Treasury, a new public corporation would be formed to hold the water monopoly, modelled on the company that built the £18.8bn Crossrail project, while Thames’s vast liabilities would be assumed into the government’s debt pile.
The water regulator, Ofwat, is reportedly working on rescue plans for Thames that could lead to the water company’s regional monopoly being dismantled and sold off to neighbouring rival suppliers under a scheme codenamed Project Telford.
Ofwat has tasked the former private equity banker Adrian Williams with overseeing the rescue bid, according to the Telegraph, in a last-ditch attempt to save the company from collapsing under the weight of a more than £15bn debt pile.
I don’t get it. What’s wrong with bankruptcy? Appoint a receiver, get some debtor-in-possession financing (possibly from the government), cancel all the outstanding equity and give debtholders all the new equity in the company while writing down the amount of debt they hold by some percentage that makes the restructured company viable. What’s the problem?
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
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| Index | Mean Current Yield (at bid) |
Median YTW |
Median Average Trading Value |
Median Mod Dur (YTW) |
Issues | Day’s Perf. | Index Value |
| Ratchet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.9934 % | 2,329.9 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.9934 % | 4,468.7 |
| Floater | 10.33 % | 10.60 % | 60,798 | 9.00 | 1 | 0.9934 % | 2,575.3 |
| OpRet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0154 % | 3,476.7 |
| SplitShare | 4.84 % | 6.78 % | 35,312 | 1.38 | 8 | 0.0154 % | 4,151.9 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0154 % | 3,239.5 |
| Perpetual-Premium | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.3044 % | 2,696.4 |
| Perpetual-Discount | 6.36 % | 6.53 % | 50,525 | 13.14 | 27 | -0.3044 % | 2,940.3 |
| FixedReset Disc | 5.23 % | 6.89 % | 127,450 | 11.93 | 57 | -0.2516 % | 2,576.2 |
| Insurance Straight | 6.24 % | 6.41 % | 55,883 | 13.27 | 21 | -0.1969 % | 2,909.0 |
| FloatingReset | 9.06 % | 9.15 % | 27,329 | 10.16 | 2 | 0.2000 % | 2,818.5 |
| FixedReset Prem | 6.94 % | 6.41 % | 215,960 | 3.08 | 2 | 0.1184 % | 2,525.7 |
| FixedReset Bank Non | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.2516 % | 2,633.3 |
| FixedReset Ins Non | 5.03 % | 7.03 % | 84,392 | 12.73 | 14 | -0.1809 % | 2,823.1 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| BN.PR.Z | FixedReset Disc | -9.52 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2054-05-17 Maturity Price : 19.00 Evaluated at bid price : 19.00 Bid-YTW : 8.85 % |
| CM.PR.P | FixedReset Disc | -4.65 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2054-05-17 Maturity Price : 21.59 Evaluated at bid price : 21.96 Bid-YTW : 6.82 % |
| MFC.PR.Q | FixedReset Ins Non | -3.46 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2054-05-17 Maturity Price : 22.28 Evaluated at bid price : 22.90 Bid-YTW : 6.93 % |
| RY.PR.N | Perpetual-Discount | -1.98 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2054-05-17 Maturity Price : 21.99 Evaluated at bid price : 22.25 Bid-YTW : 5.52 % |
| POW.PR.D | Perpetual-Discount | -1.76 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2054-05-17 Maturity Price : 19.50 Evaluated at bid price : 19.50 Bid-YTW : 6.51 % |
| PWF.PR.S | Perpetual-Discount | -1.33 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2054-05-17 Maturity Price : 18.55 Evaluated at bid price : 18.55 Bid-YTW : 6.54 % |
| PWF.PF.A | Perpetual-Discount | -1.30 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2054-05-17 Maturity Price : 17.52 Evaluated at bid price : 17.52 Bid-YTW : 6.50 % |
| SLF.PR.C | Insurance Straight | -1.16 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2054-05-17 Maturity Price : 18.78 Evaluated at bid price : 18.78 Bid-YTW : 6.02 % |
| POW.PR.C | Perpetual-Discount | -1.14 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2054-05-17 Maturity Price : 22.33 Evaluated at bid price : 22.60 Bid-YTW : 6.50 % |
| SLF.PR.E | Insurance Straight | -1.09 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2054-05-17 Maturity Price : 18.99 Evaluated at bid price : 18.99 Bid-YTW : 6.02 % |
| BN.PF.E | FixedReset Disc | 1.10 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2054-05-17 Maturity Price : 18.45 Evaluated at bid price : 18.45 Bid-YTW : 8.55 % |
| FFH.PR.C | FixedReset Disc | 1.14 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2054-05-17 Maturity Price : 21.72 Evaluated at bid price : 22.15 Bid-YTW : 7.89 % |
| MFC.PR.N | FixedReset Ins Non | 2.40 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2054-05-17 Maturity Price : 21.35 Evaluated at bid price : 21.35 Bid-YTW : 7.14 % |
| BN.PR.M | Perpetual-Discount | 4.89 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2054-05-17 Maturity Price : 18.25 Evaluated at bid price : 18.25 Bid-YTW : 6.62 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| POW.PR.D | Perpetual-Discount | 74,200 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2054-05-17 Maturity Price : 19.50 Evaluated at bid price : 19.50 Bid-YTW : 6.51 % |
| IFC.PR.I | Insurance Straight | 64,000 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2054-05-17 Maturity Price : 21.50 Evaluated at bid price : 21.50 Bid-YTW : 6.39 % |
| BIP.PR.A | FixedReset Disc | 53,150 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2054-05-17 Maturity Price : 21.00 Evaluated at bid price : 21.00 Bid-YTW : 8.60 % |
| SLF.PR.G | FixedReset Ins Non | 50,400 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2054-05-17 Maturity Price : 17.01 Evaluated at bid price : 17.01 Bid-YTW : 7.42 % |
| MFC.PR.I | FixedReset Ins Non | 47,373 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2054-05-17 Maturity Price : 23.06 Evaluated at bid price : 24.31 Bid-YTW : 6.78 % |
| TD.PF.J | FixedReset Disc | 35,520 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2054-05-17 Maturity Price : 22.62 Evaluated at bid price : 23.50 Bid-YTW : 6.76 % |
| There were 8 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| BN.PR.Z | FixedReset Disc | Quote: 19.00 – 21.20 Spot Rate : 2.2000 Average : 1.2858 YTW SCENARIO |
| CM.PR.P | FixedReset Disc | Quote: 21.96 – 23.10 Spot Rate : 1.1400 Average : 0.6397 YTW SCENARIO |
| TD.PF.D | FixedReset Disc | Quote: 23.00 – 24.00 Spot Rate : 1.0000 Average : 0.6666 YTW SCENARIO |
| MFC.PR.Q | FixedReset Ins Non | Quote: 22.90 – 23.96 Spot Rate : 1.0600 Average : 0.7577 YTW SCENARIO |
| MFC.PR.M | FixedReset Ins Non | Quote: 22.00 – 23.00 Spot Rate : 1.0000 Average : 0.7236 YTW SCENARIO |
| TD.PF.J | FixedReset Disc | Quote: 23.50 – 24.46 Spot Rate : 0.9600 Average : 0.7400 YTW SCENARIO |
Partial early redemption of PVS.PR.F
https://money.tmx.com/quote/BAM/news/5167017972839758/Partners_Value_Split_Corp_to_Partially_Redeem_Its_Class_AA_Preferred_Shares_Series_8
[…] Thanks to Assiduous Reader CanSiamCyp for bringing this to my attention! […]
[…] I’m eagerly awaiting a massive report on the Thames Water fiasco and those of us with long memories will think back to the Alberta Heritage Fund, or whatever it was […]