Thames Water faces independent oversight after credit rating downgrades triggered licence breach

Ofwat is set to impose an independent monitor on Thames Water after the debt-ridden utility was stripped of two investment-grade credit ratings.

The monitor will oversee Thames Water and report findings to Ofwat, ensuring the group improves its performance through a series of commitments, the regulator said.

On July 24, credit rating agency Moody’s downgraded Thames Water’s top-rated bonds to junk, citing the water company’s “weakening liquidity position.”

A week later, Standard & Poor’s lowered the group’s Class A debt rating to BB and its Class B debt rating to B, saying its liquidity had “deteriorated to a less than adequate position.”

The cuts meant Britain’s largest water supplier was officially in breach of its operating licence.

The regulator now wants the company, which serves about 16 million customers in London and the Thames Valley, to hire an independent monitor to oversee the progress of its transformation plan.

Ofwat also said Thames Water should elect new non-executive directors, conduct a capital raise and formulate a “proper operational” business plan to help turn its fortunes around.

These four commitments are subject to consultation and will persist until Thames Water regains both of its investment grade credit ratings, Ofwat added.

David Black, chief executive of Ofwat, said: ‘We are clear that Thames Water needs to remedy its breach of licence, improve its operational performance and secure investor support in order to regain its lost investment grade credit rating.

‘These enforceable commitments will include bringing an independent monitor into the business, reporting back to us on what is happening to drive meaningful change in performance and ensuring the right expertise is brought into its board.

“We will continue to monitor developments and will not hesitate to take further action if necessary.”

Ofwat’s latest action against Thames Water comes a day after it proposed fining the company £104m for excessive wastewater discharges.

Thames Water, along with Northumbrian Water and Yorkshire Water, were found to be regularly discharging wastewater into rivers and seas, rather than in “exceptional circumstances” as allowed by law.

Britain’s water industry has faced a backlash from environmental groups, politicians and consumers in recent years over its poor record on wastewater discharges.

According to the Environment Agency, water companies were responsible for 3.6 million hours of sewage spills across England in 2022, more than double the 1.75 million hours recorded the previous year.

Trade association Water UK called the rise “unacceptable” but attributed it to increased rainfall, a major cause of stormwater overflows.

However, the Environment Agency said this “does not affect the responsibility of water companies to manage stormwater overflows in accordance with legal requirements.

To help clean up the UK’s rivers and waterways, Ofwat ruled in July that English and Welsh water companies could spend £88bn between 2025 and 2030 on infrastructure improvements.

These improvements are expected to be funded by increasing household water bills by an average of £94 over the five-year period, excluding inflation.