Thames Water creditor backs plan to break up business

Luke Barr
Wed, 17 April 2024 

Thames

A leading bondholder in Thames Water has backed plans to break up the business as it races to stave off collapse.

The prospect of carving up Thames Water is gaining momentum ahead of a rescue plan that bosses are expected to unveil on Friday.

Luke Hickmore, a fund manager at Abrdn who holds secured bonds in Thames Water, said he would support a split if it meant protecting creditors’ interests.

The Telegraph revealed earlier this month that bosses were exploring a potential break-up as part of a range of scenarios to avoid nationalisation.

Under the proposals being considered, Thames Water – which serves 16 million customers – could be divided into two separate smaller companies: one covering London and the other serving the Thames Valley and Home Counties regions.


Given its size, Mr Hickmore said Thames Water must reach a positive outcome for both “political and economic reasons”, as the risk of creditors losing out would knock confidence levels across Britain’s infrastructure sector overall.

He said: “They are one of the largest issuers in the UK. That’s a pretty important outcome for everybody, whether it be pensioners or insurance companies.”

It emerged on Tuesday that Thames bosses are also reportedly weighing a possible debt raise as it hunts for new cash to secure its future.

However, City sources played down the prospect, questioning why the beleaguered supplier would tap debt markets given it is already burdened by an £18bn debt pile.

One bondholder who recently sold out of Thames said: “It’s smoking something, right? The management team is panicking and thinking about how they can make it work and they can’t.”

A restructuring adviser involved in discussions added: “I find it mesmerising that any more debt could go in. No one would allow it. It seems crazy to my mind.”

Speculation around Thames’ finances comes weeks after parent business Kemble, which represents shareholders, confirmed it is cutting off fresh funds from the business over claims regulator Ofwat has rendered the business “uninvestable”.

It is understood there has been no dialogue between Thames Water bosses and Kemble since the announcement.

Shareholders’ refusal to fulfil a £500m funding package has pushed Thames Water closer to the brink, despite bosses’ claims that the company has £2.4bn of funds to see it through the next 15 months.

A collapse into special administration – where the Government steps in to keep the company operating – has grown increasingly likely in recent weeks, with the supplier yet to convince Ofwat that it must increase bills by 40pc in order to ensure long-term profitability.

According to sources close to the company, a taxpayer bailout could cost £5bn “just to keep the lights on”.

A Thames bondholder said: “We’re all running scenarios every morning and worrying about whether they are going to go through a special administration regime.”

It is understood that breaking up the business would make it easier for Thames’ operations to be sold on to a rival once stabilised.

Colm Gibson, managing director at Berkeley Research Group, said: “It is far from certain that Thames Water would emerge from special administration as a single large company. It is entirely possible that it could be broken up into a series of smaller water companies serving local areas.”

The Government is reluctant to intervene in the handling of Thames Water given the looming election, which could make it a problem for Sir Keir Starmer if Labour succeeds at the polls later this year.

This has already led to talk across the industry that Labour is in favour of a break-up, although the party rejected the speculation Wednesday.

Last week, Chancellor Jeremy Hunt said it would be “utterly outrageous” for Ofwat to grant Thames Water’s demands for higher household bills.

He said shareholders in the company “had an obligation to sort out the mess” when asked whether they had a duty to inject more cash into the business.

Thames Water declined to comment.

Traders bet on Thames Water crisis contagion as firm races to agree survival plan


Lars Mucklejohn
Wed, 17 April 2024 

Rishi Sunak's government is facing a political headache as it may be forced to temporarily nationalise Thames Water

Traders at major US hedge funds are betting against the debt and equity of British water companies amid fears over their levels of debt and the risk of contagion across the sector sparked by the crisis engulfing Thames Water.

Millennium Management had disclosed a short position on northwest-focused United Utilities, while Arrowstreet Capital has bet against the southwest’s Pennon. United Utilities has the most debt of any UK water company behind Thames.

Bloomberg, which first reported the news, cited data from S&P Global Market Intelligence showing that short interest on United Utilities had jumped to almost seven per cent on 12 April from two per cent last July.


Meanwhile, short interest in Southern Water bonds jumped to 6.6 per cent this week from roughly 0.8 per cent at the start of the year.

Debt is commonplace across the water sector. Suppliers have collectively amassed more than £51bn in net debt in the 32 years between privatisation in 1991 to March 2023, according to research by the Financial Times.

Even as the sector has come under increasing scrutiny, debt has continued to rise. In the past two years alone, the figure has jumped £8.2bn.

The government is facing the costly prospect of having to temporarily nationalise Thames, which is the UK’s biggest water supplier with some 16m customers, to prevent it from collapsing.

The firm is struggling under a £15.6bn debt pile, which has become increasingly difficult to service amid higher interest rates.

Regulator Ofwat last month rejected Thames’ plan to hike bills by 40 per cent to help ease its debt pile, causing shareholders to pull £500m of emergency funding. The crisis worsened earlier this month when Thames’ parent company Kemble defaulted on around £1.4bn worth of debt.

Thames Water now has under two months to convince Ofwat that it has a feasible survival plan before it publishes a determination on how much water companies can charge customers on 12 June.

Whether Thames can strike a deal with the regulator will be a crucial signal on how likely it is to attract new equity investors and avoid falling into special administration.

Royal London, among the asset managers most exposed to Kemble’s bonds, has argued that if the government takes over Thames, and triggers losses for bondholders, it could deter much-needed investment from other infrastructure assets.

Kemble is expected to miss its repayment deadline for a £190m loan to a consortium of four banks, including two state-owned Chinese lenders, at the end of this month.

Thames has said it has £2.4bn of liquidity available and can still meet its commitments until at least May 2025. However, high borrowing costs and fines from Ofwat risk significantly shrinking this cash pile.

Thames declined to comment when approached by City A.M.

Thames Water to add to debt mountain in bid for survival


Alex Lawson and Anna Isaac
Tue, 16 April 2024 
The Guardian

Ongoing water pipe work in London. Thames Water already has £15.6bn of debt.

Photograph: Leon Neal/Getty Images

Thames Water is preparing to tap debt markets within weeks in an attempt to fund a rescue plan and repair its threadbare finances, the Guardian can reveal.

It is understood the embattled water company is planning to publish a revised five-year spending plan within days, before a deadline next month. Its board is expected to meet on Thursday to rubber-stamp the plan, and executives hope to release it on Friday.

Sources said the company then intends to wait for up to a week before approaching lenders to fund the proposals and has sought advice from City bankers and lawyers on the debt issuance. Financiers said the proposed timing of the fresh borrowing was surprising, given huge uncertainty around Thames’s future.

Britain’s biggest and most heavily indebted water company is fighting to secure its financial future, and has already said it only has cash reserves to fund its operations for the next 15 months without a substantial increase in bills.

Thames’s plans to raise fresh debt come despite it labouring under a £15.6bn debt pile. Its parent company, Kemble Water Finance, missed an interest payment earlier this month, and said it will not be able to repay a £190m loan due by the end of April.

Its shareholders also recently backtracked on plans to inject £500m into the business amid a standoff with the industry regulator, Ofwat. The investors, which include USS and Omers, said Thames’s original business plan was “uninvestible” (sic) and demanded Ofwat allow it to raise bills sharply, levy lower fines and pay dividends.

The company plans to republish the spending plan covering 2025 to 2030, which was first submitted to Ofwat last October, to allow regulators and investors to scrutinise it. Thames then intends to give markets a few days to settle and “absorb” the information before pushing the button on the debt plan, sources said.

Thames’s original plan was to raise bills by 40% to fund an £18.7bn investment programme. However, the size of its investment plan is expected to be revised upwards by between £1bn and £1.5bn, with the £1.5bn more likely.

It is unclear how much of the extra funds Thames hopes to raise through issuing new debt, but sources said it would have to be sizeable given the scale of its funding needs.

Sources said that Thames, which has 16 million customers across London and the Thames valley, hopes to price the bonds in late April, before issuing the debt formally in early May.

Lenders signing up to the debt issuance could be taking a gamble, however, as it is unclear how much Ofwat will allow Thames to raise through higher consumer bills.

Ofwat is due to publish its draft response to Thames’s plan on 12 June, with water companies’ plans not signed off until December. The Guardian revealed this week that the company had six weeks to convince the regulator that it had a credible survival plan for its business,before an Ofwat board meeting on 23 May.

Ofwat is understood to be sceptical that Thames’s current business plan is viable or fair on consumers and is demanding a separate turnaround strategy for reforms to its management and governance.

The company could be hamstrung by the relatively small pool of debt and equity investors in the UK water sector, and the high-profile concerns expressed over Thames’ future. Bonds in its parent company are trading at a steep discount after its default.

Other possible scenarios include a renationalising the company, an attempt to find new shareholders – potentially through a stock market float – a debt-for-equity swap and a breakup of the company.

Although Thames’s operating company has £15.6bn of debt, the wider group has borrowings of more than £18bn across in its byzantine corporate structure.

Thames’s financial troubles have drawn further attention to the stewardship of the company by Macquarie, the Australian bank that previously owned the water supplier and which has been heavily criticised for building huge debts at Thames while paying dividends to shareholders.

The company’s current backers include the Canadian pensions firm Omers; the UK university staff pension scheme; a subsidiary of the Abu Dhabi sovereign wealth fund and China’s sovereign wealth fund.

Thames Water declined to comment.

UK’s biggest water supplier plunges into deeper financial crisis

P3;PENSIONS FUND PRIVATIZATION

By AFP
March 28, 2024


City of London: — © AFP

Debt-plagued Thames Water has failed to raise a major cash injection from shareholders, it revealed Thursday, blaming industry regulations that made its rescue plan “uninvestable”.

Britain’s biggest water supplier said in a statement that £500 million ($630-million) of new equity would “not be provided by Thames Water’s shareholders” this month.

The cash represented most of a £750-million funding lifeline agreed with investors in July to stay afloat.

The company on Thursday said it was in talks with industry regulator Ofwat over a plan that is “affordable for customers, deliverable and financeable for Thames Water, as well as investible for equity investors”.

Britain’s domestic Press Association news agency said Ofwat had refused to bow to Thames Water’s demands for concessions, which it said included a 40-percent jump in water bills that would worsen the country’s cost-of-living crisis.

Thames Water is Britain’s biggest water supplier – Copyright AFP SAUL LOEB

Other concessions sought reportedly include an easing in capital spending requirements and leniency over regulatory penalties.

– ‘Pursue all options’ –

“Safeguards are in place to ensure that services to customers are protected regardless of issues faced by shareholders of Thames Water,” said an Ofwat spokesperson.

“Today’s update… means the company must now pursue all options to seek further equity for the business to turn around the performance of the company for customers.”

Thames Water, which supplies more than 15 million homes and businesses in London and elsewhere in southern England, is saddled with debts of almost £15 billion that have placed it at risk of nationalisation.

“We prepare for a range of scenarios across our regulated industries — including water — as any responsible government would,” said a statement Thursday from the Conservative administration led by Prime Minister Rishi Sunak.

Steve Reed, environment spokesman for the main opposition Labour party, said “the government and regulators must do everything in their power to stabilise the company and ensure new investment comes through to fix the broken sewage system without taxpayers being left to foot the bill.”

Labour, widely tipped to win a UK general election this year according to several polls, “will strengthen the regulator’s powers and make financial stability a priority to prevent this situation from happening again” should it win power, Reed added in a statement.

Thames Water has faced fierce criticism over missing targets to reduce leaks and slash sewage discharges into rivers, despite major infrastructure investment.

Environmentalists have increasingly voiced outrage at the rise in pollution on the UK’s beaches and waterways, and have pointed the finger at privatised water companies.

Elsewhere on Thursday, researchers revealed that high levels of E.coli, a bacteria found in human waste, had been found in London’s River Thames.

The river will Saturday host the Oxford and Cambridge Boat Race — an annual event featuring competing rowing crews from England’s two oldest universities.

THAMES WATER SHAREHOLDERS INCLUDE OMERS; 

ONTARIO MUNICIPAL EMPLOYEES RETIREMENT SYSTEM

THATCHER'S PRIVATIZATION 

Put Thames Water into special administration, Lib Dems tell ministers

CANADIAN PENSION; OMERS IS ONE OF THE LARGEST INVESTORS


Sandra Laville and Alex Lawson
Fri, 15 March 2024 

Thames Water this week declined to commit extra funds to a £180m industry-wide initiative to fast-track efforts to reduce sewage pollution.Photograph: Toby Melville/Reuters

Thames Water should be put into special administration by the government and reformed as a public benefit company, the Liberal Democrats have said.

Sarah Olney, the Lib Dems’ Treasury spokesperson, has called in a parliamentary debate for the biggest privatised English water company to be wound up under legislation that has recently been updated by ministers.

It makes the Lib Dems the first mainstream political party to say the struggling company must be taken over to secure water and sewerage services for 15 million people.

Thames Water is seeking a shareholder bailout of £2.5bn to the end of the decade to stay solvent, but it wants Ofwat, the water regulator, to allow it to increase customer bills by 40%, pay higher dividends and face lower fines for pollution in order to secure the shareholder investment.


Olney said in parliament: “Thames Water is no longer a functioning company and the government has a choice: either bail them out with taxpayer money or listen to our calls to put them into special administration to then be reformed into a company for the public benefit.”

Thames Water declined to commit extra funds this week to a £180m industry-wide initiative to fast-track efforts to reduce sewage pollution in England’s waterways. Its parent company has been told by its auditors that it could run out of money by April if shareholders do not inject more cash into the company. It needs to repay a £190m loan due in April.

Special administration can be triggered if a company cannot pay its debts or is not performing its statutory requirements.

“The final straw was this week, when Thames Water bosses refused to stump up the cash for new sewage investments,” said Olney. “It was shocking that Conservative ministers just let them get away with it.”

The government is drawing up an emergency plan, known as Project Timber, in the event of the collapse of Thames Water. But Olney said ministers must use their recently updated water insolvency legislation to put the company into special administration.

This can be triggered by the secretary of state or Ofwat. Olney said with the company unable to pay its debts, and recusing itself from new sewage investments, the threshold for special administration had been met.

Under the updated water insolvency legislation the company can be taken over as a going concern to make sure that water and wastewater services continue for 15 million people. The taxpayer would not be liable for the debts, which would stay with the holding company, according to independent analysis of the updated legislation by the House of Commons library.

Olney said the company, once in special administration, could be reformed as a public benefit company, where “profit is no longer put above environmental goals”.

Olney asked the government to provide details of Project Timber. In response, Mark Spencer refused to comment specifically on Thames Water, citing “market sensitivities around private companies”. The environment minister said “the government does have a plan” to support companies in essential services such as utilities or banking “in moments of distress”.

He said: “The government’s priority is the ongoing provision of water and wastewater services.”

Thames Water admits in its latest business plan, which has been submitted to Ofwat for approval, that it has overseen the “sweating of assets” and allowed its infrastructure to decline over decades because it has stretched the life of the assets, repairing rather than replacing.

It is promising to invest £4.7bn to tackle the decline of its infrastructure but says to fully repair its sewers would cost £1.5bn and its sewage works £2.2bn. Thames says it will not be able to deliver the full extent of the investment into its ageing assets nor meet the environmental obligations it had wanted to meet by the end of the decade.

The company is also under investigation by Ofwat and the Environment Agency for suspected illegal sewage discharges from many of its treatment works. The Ofwat investigation, which is due to report within months, could impose multimillion-pound fines on Thames. The company admits that 157 treatment works are non-compliant.

Thames Water declined to comment.

A government spokesperson said: “Water companies are commercial entities and we do not comment on the financial situation of specific companies as it would not be appropriate. We prepare for a range of scenarios across our regulated industries – including water – as any responsible government would.”

CANADA

Pension funds improving modestly on climate but still too slow: report

Ian Bickis, The Canadian Press

Canada's largest public pension funds are showing modest improvements on climate action but are moving too slowly overall, says a new report by a climate advocacy group.

The progress report from Shift Action for Pension Wealth and Planet Health notes that four of the 11 pension plans it examined still don't have emissions reduction targets for 2030 or 2050. 

It also says many of the pension funds are still not being transparent about their fossil fuel holdings, and none have acknowledged the need to phase them out.

Adam Scott, executive director of Shift, said it's important pension plans take action both to reduce investment risk and climate risk. 

"It's not just about defending their own portfolios, it's also about addressing the wider crisis systemically."

The report notes there were some improvements, including the first climate plans out of the Ontario Municipal Employees Retirement System and the Healthcare of Ontario Pension Plan.

But Scott said there has also been misalignment with some pension plans and their actual action, including at the Canada Pension Plan Investment Board.

The CPPIB, one of the few to still not set out interim emissions reduction targets, was the only one to slip in its letter grade in the report. 

"We're quite disappointed to see a pattern of public communication from CPPIB that is offside with their own net-zero plans and commitments," he said.

There were multiple examples of pension plans continuing to invest in fossil fuel companies that have plans for expansion, which creates a risk, given the transition and the long-term investment horizons of pensions, said Scott.

"When they decide to sell, is there somebody else willing to pay for it? That's where the risk really comes in."

The Alberta Investment Management Corp. received the worst grade among the 11 Canadian pension plans analyzed for the second year, as Shift says it sets no clear targets and has yet to put out a credible climate plan.

This report by The Canadian Press was first published Feb. 27, 2024.

Canada's top pensions have trillions in assets. 

Should they do more to fuel the energy transition?

New report analyzed pension funds for climate targets — and many fell short

Benjamin Shingler · CBC News · Posted: Feb 27, 2024 

A new light-rail network in Montreal was funded in part by the Caisse de dépôt et placement du Québec, the province's pension fund manager. Climate activists have been increasingly pressuring pension managers to transition from oil and gas to renewable energy. (Ivanoh Demers/Radio-Canada)

Canada's largest pension funds, which hold trillions of dollars in assets combined, are trailing behind many of their international counterparts when it comes to shifting away from investments in fossil fuels, a new report has found.

The report, released Tuesday by the advocacy group Shift Action for Pension Wealth and Planet Health, evaluated the policies of 11 of the country's largest pension managers against international best practices, as well as global targets to reduce greenhouse gas emissions.

The report found some progress since the group's first assessment, released last year, but on the whole found that most of Canada's pension managers still lag when it comes to climate commitments.

"What we're seeing is progress, which is great to see, but the pace of that progress just isn't fast enough to protect pensions and to align more broadly with climate goals," Adam Scott, executive director of the advocacy group, said in an interview.

WATCH | Call for pension funds to stop investing in fossil fuels: 

Climate change concerns are important to many Candians but some are calling out pension funds for continuing to invest in the fossil fuels sector.

Climate activists in Canada and beyond have been increasing pressure on pension managers to steer away from fossil fuel investments toward renewable energy.

Some pension funds in other jurisdictions have already begun divesting from fossil fuels. 

Big changes abroad

The report cites New York City pension funds, as well as others in France and Netherlands, as examples of how to be more transparent about investments, help fund the renewable energy sector and use shareholder resolutions to demand climate action from companies.

Earlier this month, another Dutch fund, PFZW, divested its holdings in Europe's biggest oil and gas companies, saying they are not reducing emissions fast enough.

In Canada, by contrast, four of the 11 pension funds listed still do not have emissions reductions targets for both 2030 and 2050, according to the report. 

• Banks' investments in fossil fuels threaten economy and climate alike, advocate says

Part of the problem may be "entanglements" at the board level between the pension sector and oil and gas production in Canada, the report's authors argued.

Seven of the 11 pension funds have at least one director or trustee who is also the director or executive of a fossil fuel company, the report said. 

Quebec pension fund scores high

For the second year in a row, the Caisse de dépôt et placement du Québec (CDPQ) scored highest in climate leadership among the funds analyzed, with the University Pension Plan (UPP) in Ontario placing second. 

The CDPQ, which has net assets totalling $434 billion, completely divested from oil production, refining and coal mining in 2022 and increased its investments in low-carbon assets to $47 billion, according to the report.

UPP, a smaller fund representing university workers with about $11 billion in net assets, was praised for its transparency with beneficiaries and for working toward having a net-zero portfolio by 2040.

A pumpjack draws out oil from a well head near Calgary. (Jeff McIntosh/The Canadian Press)

The biggest improvements came from the Ontario Municipal Employees Retirement System (OMERS) and the Healthcare of Ontario Pension Plan (HOOPP), funds that were previously far behind but released climate strategies in 2023.

The Alberta Investment Management Corporation (AIMCo), which holds $158 billion in assets, ranked lowest for the second consecutive year.

According to the report, it "failed again to commit to measurable goals that could align its portfolio with climate safety." It also said AIMCo has not yet released what it called a credible climate plan.

AIMCo did not immediately return a request for comment Tuesday.

"It's our job to invest in places where we can make money for our clients, not to impose our values on our clients' money," Evan Siddall, AIMCo's CEO, told the Financial Post in December. "And so we'll continue to invest in oil and gas, which has paid off."

In early February, AIMCo announced a new $1-billion fund dedicated to the energy transition and decarbonization.

"AIMCo has been strategically evaluating climate change risks and opportunities for the last decade," Marlene Puffer, its chief investment officer, said at the time.

$2.2T in assets

The 11 pension funds in the report collectively manage more than $2.2 trillion in retirement savings on behalf of more than 27 million Canadians. In total, Canadian pension funds hold more than $4 trillion in assets, the report said.

The vast sums of money at stake has spurred debate over whether pension funds have an obligation to take climate goals into consideration, or whether their fiduciary duty rests solely in maximizing returns for beneficiaries.

New York City municipal workers sued pension funds last year, arguing the managers were putting the climate over their investment returns. 

Scott rejected the idea that divesting from fossil fuels could jeopardize retirement savings.

He pointed to a 2023 analysis by the University of Waterloo and the environmental group Stand.earth that found six major U.S. public pension funds would have seen a return on their investments that was 13 per cent higher on average, or $21 billion US more, had they divested from fossil fuels a decade ago.

• As Canadians call for greener pensions, pressure mounts for funds to cut ties with oil and gas

• Royal Bank the No. 1 financier of fossil fuel development in the world, new report finds

In Scott's view, pension funds are in a unique position in the financial sector to help drive the transition away from fossil fuels and toward renewable energy.

"They own everybody, including banks. They own companies, they own the whole real economy and they're long-term investors. So they have a different perspective," he said.

Julie Segal, who specializes in financial regulation at the advocacy group Environmental Defence, said the report shows the need for greater regulation of the financial sector so that institutions are required to set clear, measurable climate targets. Other jurisdictions, notably the European Union, have gone further in this regard, she said. 

"Canada is very far behind on setting those rules for the financial sector and we need climate-aligned finance policy," Segal said.

A recent World Bank report concluded that the global pension industry, whose assets totalled an estimated $44 trillion US in 2018, play "a critical role in the transition to a low-carbon climate resilient economy."

It concluded that pension funds must "reinvent themselves to comply with their global presence and a definition of fiduciary duty aligned with today's challenges."

WORKERS CAPITAL
Feds must force pensions to fund Canadian mining, Lassonde, Giustra say

 
Colin McClelland | February 25, 2024 | 

Highland Valley Copper Operations in British Columbia sports the flag.

 (Image courtesy of Teck Resources.)

Ottawa has to pressure pension funds to invest billions in Canadian mining, a radical change from their almost non-existent stakes, if the industry is ever going to produce enough metals to fight climate change, veteran entrepreneurs Pierre Lassonde and Frank Giustra say.


Canada’s eight largest pension funds hold some C$2.1 trillion in assets but only a quarter was even invested in the country last year, according to research by Montreal-based fund manager Letko Brosseau. The so-called Maple Eight devoted just 3% to domestic equities, the lowest of a group of six countries including the United States, the United Kingdom and Japan, data show.

“They’ve taken the vast majority of this money – 75% of it – and invested it outside Canada to create jobs outside of Canada to the detriment of Canadians,” Lassonde, a founder of Franco-Nevada (TSX: FNV; NYSE: FNV) and a former president of Newmont (NYSE: NEM; TSX: NGT), said in a phone interview this month. “Essentially, the mining industry has been ignored.”

Pension funds are not investing in large Canadian mining companies, which may in turn invest in juniors, in part because few domestic options remain. Switzerland-based Glencore’s (LSE: GLEN) acquisition of most of Teck Resources’ (TSX: TECK.A/TECK.B; NYSE: TECK) coking coal assets in November for about C$9 billion is the latest large deal scooping up Canadian assets.

Xstrata, now part of Glencore, bought nickel giant Falconbridge for C$39 billion in 2006, the same year Brazil’s Vale (NYSE: VALE) purchased the country’s other main nickel producer, Inco, for C$19 billion. Australia’s Rio Tinto (NYSE: RIO; LSE: RIO; ASX: RIO) followed a year later in acquiring aluminum producer Alcan for C$38 billion. Lassonde and Giustra say pension fund investing might have helped them stay.

“We’re talking about very large companies, mining giants that we lost to foreigners,” said Giustra, who founded Lions Gate Entertainment (Fahrenheit 9/11, The Hunger Games) and helped start Wheaton Precious Metals (TSX: WPM, NYSE: WPM; LSE: WPM) and Endeavour Mining (TSX: EDV; LSE: EDV).

“These aren’t risky companies. This was the backbone of our mining industry in this country.”

Rules eroded

Indeed, Canadian pensions were required to invest 90% of their assets domestically in 1990, but federal governments gradually reduced the limit before removing it entirely in 2005. Total domestic exposure as a percentage of assets ranges from 55% held by the Healthcare of Ontario Pension Plan to 13% run by Public Sector Pension Investments (PSP). The average of other pension funds around the world is 52%, according to Letko Brosseau.

Pensions are the largest repository of wealth in many countries and globally hold nearly $50 trillion. Reaching net zero emissions by 2050 will require annual clean energy investment worldwide to more than triple by 2030 to around $4 trillion, according to the International Energy Agency. Just mining enough battery metals over the next three years will cost as much as $450 billion, the agency said. In 2022, Ottawa budgeted nearly C$4 billion in spending on critical minerals by 2030 but it’s not clear how pension funds are being engaged to support projects.

“The government of Canada continues to engage with critical minerals stakeholders, including pension plans and other institutional, arms-length investors,” Michael MacDonald, a spokesman for the federal Natural Resources Ministry, said in an emailed reply to questions.

It was MacDonald’s only reference to pension funds in what was otherwise a page-long list of government programs stemming from its critical minerals strategy. He suggested the Canada Development Investment Corp. (CDEV), a federal Crown corporation that advises the government on financial matters, might explain how mining companies could seek funding from the C$15 billion Canada Growth Fund. CDEV didn’t reply in time for this story.
Pensions mum

Pension funds themselves were even more reticent to discuss the issue. Only the Caisse de dépôt et placement du Québec (CDPQ), which Lassonde praised for its resource funding, replied to emails seeking comment. The Canada Pension Plan (CPP), the Ontario Teachers’ Pension Plan (OTPP), the Ontario Municipal Employees Retirement System (OMERS), and the PSP didn’t reply or declined to speak.

“CDPQ is active in the mining sector in Quebec and Canada and has an investment team dedicated to the sector,” Kate Monfette, the pension’s media director, said by email. “Among other things, with a fund like Sodémex which supports exploration projects, we remain on the lookout for developments and opportunities in the mining and materials ecosystem. Our priority is to focus on the most promising companies in order to help them develop while generating a return for our depositors.”

British Columbia Investment Management (BCI) said it invests 29.4% in Canada and referred other inquiries to its annual report. OMERS said it wouldn’t comment on the topic.

Canada should consider Australia’s example, Lassonde and Giustra said. Its pensions, which are called superannuation funds, hold A$3.5 trillion (C$3.1 trillion), the third-largest amount behind the US and the UK. Domestic equities make up 21.9% of their assets. The large stakes prevent foreign takeovers, the entrepreneurs argued.

“That’s what keeps their domestic mining industry alive,” Giustra said. “We’re a comparable country in terms of how prolific our mining opportunities are, same as Australia, and we don’t have that same opportunity.”

Letko Brosseau says Canada’s top eight pension funds have invested more in China than in Canadian companies: C$88 billion versus C$81 billion. CPP has 2% in domestic shares, BCI has 0.5% and OTPP has 0.1%, the firm says.

Economics urged

Giustra said mining CEOs must lobby pension funds with moral suasion for why they should invest in Canada and make an economic argument. With China’s current woes from property market turmoil and a long-term population decline in motion, its boom years are over and it’s time for Canadian pension funds to repatriate funds to the world’s second-largest country by landmass that has top-tier mining regulations.

Lassonde went further and said federal and provincial governments must legislate pension funds to increase their investments in Canadian resource companies. He’s backed Letko Brosseau’s presentations to finance ministers in BC and Ontario as well as to officials in Ottawa.

“We’re trying to get to the decision makers and trying to make them understand what Canada is losing by doing nothing,” he said. “They created these funds, it’s in their power to legislate how these funds are managed.”

Giustra, who heads private equity firm Fiore Group invested in Aris Gold (TSX: ARIS) with mines in Colombia, and Ontario-focused explorer West Red Lake Gold Mines (TSXV: WRLG), said Canadian asset managers slashed their non-pension dedicated mining funds to C$2.8 billion in 2022 from C$16 billion in 2010.

“There’s just no source of capital, the industry starves,” he said. “You don’t have the seniors funding them, the pension funds aren’t there and we’ve lost the traditional mining funds here as well.”

Lassonde, who led a group of investors assembling an offer in May for Teck’s coking coal assets that was later beat by Glencore, said he approached BCI and Ontario pensions for input but got no response.

“If you want steel and you want the lowest carbon-emitting steel in the world, it’s that coal, OK, and there was nobody to talk to,” he said. “In Australia, we could have done this deal in about five days.”

THATCHER PRIVATIZED WATER

Thames Water debt crisis threatens taxpayer with multibillion-pound bill

ONTARIO PUBLIC SECTOR PENSION FUND; OMERS, 

IS A MAJOR SHAREHOLDER

Ben Marlow
Fri, 16 February 2024 

Thames Water

The debt crisis at Thames Water risks a bill for taxpayers running into the billions of pounds, according to contingency plans being drawn up to avert disruption to supplies.

It is feared that regulatory rulings will prompt the company’s shareholders to pull the plug in the coming months.

Sources close to the situation said that by refusing to invest they would force Thames Water into special administration, where it would immediately require a hefty slug of public money to keep contractors on the job and supplies flowing.


The concerns are being stoked by the belief that the industry regulator Ofwat is poised to block a request from Thames Water to hit one in four homes with a 40pc jump in bills.

The company’s shareholders, which are led by the Canadian pensions giant Omers and the Universities Superannuation Scheme, have made further investment dependent on approval.

Thames Water has asked its backers for a cash injection of £3.3bn. Ofwat could also hit the company with hundreds of millions of pounds of fines, however.

Without the shareholder cash there are concerns that Thames Water would be unable to service its giant debt pile at a time when the beleaguered utility must find billions of pounds to repair its leaky network of pipes and sewers.

The mounting crisis is already prompting moves in Whitehall. Water company insolvency laws are currently being amended to make it easier for the Government to step in, including on the grounds that it has fallen short of performance targets.

If Thames Water is put into special administration, it is estimated that as much as £5bn of financial support would be needed from the outset “just to keep the lights on”, according to a Whitehall source. Without immediate Treasury guarantees, critical contractors could down tools, it is feared.

Sources close to the discussions cautioned that they remain at the contingency planning stage and administration could be averted if Ofwat gives the green light to ramp up bills over the next five-year cycle, starting in 2025.

A decision is expected by June. The special administration regime has been used before when the energy supplier Bulb went bust in 2021. It was eventually sold to Octopus Energy.

Thames Water is struggling under the weight of borrowings of nearly £19bn. Last year its auditor warned it could run out of cash by April.

Its troubles have spooked the debt markets, prompting a sell-off of its bonds that has left prices at all-time lows. The value of a bond linked to an entity in Thames Water’s sprawling corporate structure has crashed to less than 39p in the pound. Seven months ago the IOUs were changing hands for 87p.

Thames Water previously announced that it had secured an initial £750m of new equity into the company by 2025 subject to conditions. However, in December, finance director Alastair Cochran was forced to admit that the funds were still to be confirmed.

“Investors are looking for some comfort from Ofwat that it will support that business plan,” Cochran said at the time. “They will take a pragmatic view depending on the feedback they get.”

Investors have also asked Ofwat to agree to less punitive fines for missing pollution and other performance targets.

In October, it was named among the industry’s worst performers in the watchdog’s annual review for a third year. It came just weeks after Thames Water was hit with a £101m fine for “lagging” in its efforts to clean up pollution, plug leaks and improve customer service. The penalty was later reduced to £73.8m.

Ofwat is also investigating whether Thames Water broke a new licensing agreement by paying a £37.5m dividend that ultimately ended up with the company’s parent.

If it is found to have breached the rules it could face a fine equivalent to 10pc of turnover. The company reported revenue of nearly £2.3bn last year.

A Thames Water spokesman said: “We take our licence obligations very seriously, including those relating to the declaration and payment of dividends. Our plans assume no external dividends to shareholders until at least 2030, to support our turnaround.”

On Friday, Sir Adrian Montague quit as chair of Thames Water’s parent company Kemble. Regulators had reportedly raised concerns that the board of Kemble and Thames were not sufficiently independent from each other, particularly with Montague chairing both companies.

Industry sources believe Thames Water could also be facing a steep penalty for storm overflow failures.

A Government spokesman said: “We prepare for a range of scenarios across our regulated industries – including water – as any responsible government would.”

Ofwat declined to comment.

Thames Water faces sink or swim moment as debt crisis deepens

ONTARIO PENSION FUND OMERS IS INVESTOR

Michael Bow
Sun, 28 January 2024 

Thames Water serves 15 million households - Jose Sarmento Matos/Bloomberg

A key portion of Thames Water’s £14bn debt pile has crashed to a record new low in the clearest sign yet that investors are abandoning the embattled group.

Fund managers who own Thames debt have been dumping some of its riskiest IOUs in recent days over fears the company could fail to repay the debts.

A bond linked to an entity in Thames’ byzantine debt structure has crashed by 20pc in value over the last fortnight. The bond, which is linked to a company called Thames Water (Kemble) Finance, is now worth 40p in the pound, down from a price of 50p. They were worth as much as 87p six months ago.
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While having no immediate impact on the group, or consumers, the bond market tremors are a sign investors believe that Thames Water could be heading for a further financial squeeze.

“The market is telling you that there is a high probability that these bonds don’t get repaid,” says one investor.

Thames is Britain’s largest water company with 15m customers. But the utility giant has been hamstrung in recent years by its complex debt structure.

It has £14bn of debts against £19bn of equity, according to most recent figures, meaning it has borrowed almost as much as investors have put in. This high leverage makes the company vulnerable to the whims of investors and banks.

Rising interest rates have put intense pressure on Thames as its debt repayment costs have increased rapidly.

Thames Water was handed a £750m lifeline from shareholders in July to stave off nationalisation, but bosses have admitted the company may need £2.5bn between now and 2030 to remain viable. Will it be able to raise the money?

As well as financial concerns, campaigners such as former Undertones frontman Feargal Sharkey have also taken aim at the company over its environmental record.

Figures released last week showed the amount of sewage Thames dumped in London’s rivers rose by nearly five times last year versus 2022.

The gloomy backdrop underscores the challenges facing chairman Sir Adrian Montague and new Thames chief executive Chris Weston.

As the architect of New Labour’s Private Finance Initiatives (PFI) projects in the late 1990s, Sir Adrian helped usher in an era when deep-pocketed private investors ploughed money into public services.

Known as a fixer in Whitehall, Sir Adrian was parachuted into Thames in June to draw on his deep experience balancing the twin demands of the City and Westminster.

His experience will be valuable as Thames faces pressure from regulators, politicians, debtors, shareholders and campaigners alike.

Weston was the former chief executive of Aggreko and is well regarded in City circles for leading the power group successfully for seven years.

In a sign of intent last week, the duo moved to reshuffle a small portion of Thames’ debt mountain.

Chris Weston is charged with clearing some of Thames Water's debt pile - Andrey Rudakov/Bloomberg

The company raised £850m of debt from investors at the same time as buying back £500m of existing debt. Orders for the bond were oversubscribed.

A bond investor said the sudden refinancing showed Thames was trying to get on the “front foot” to build momentum in the market ahead of a difficult year.

“It does show a degree of confidence at the regulated level. If it had not been subscribed to, it would have been a real kick in the teeth,” they said.

Tellingly, the bonds were priced at a more attractive price than they could have been, offering a small discount to the value of other Thames bonds.

TwentyFour Asset Management partner Gordon Shannon said the discount was an attempt to lift some of the gloom over the Thames name.

“Clearly Thames are giving a level of concession because there’s more than a little bit of a stink around the name,” he says.
However, the debt reshuffle is relatively small beer.

Shannon says: “While issuing longer dated debt is helpful at the margin in pushing some of their issues down the road, what Thames really needs is a fresh equity injection.”

Thames has a complex structure, with a regulated operating company called Thames Water Utilities running the network and several companies dubbed Kemble – named after the source of the River Thames – raising money to invest in the network by borrowing from bond markets.

Money flows back from Thames to Kemble but there are concerns about how much will trickle up in future. Ofwat launched a recent investigation into a £37.5m dividend payment that may have flouted regulations.

The bond slide last week signals that markets fear payments to bondholders could be choked off.

With shareholders like USS and OMERS having already ploughed £750m into the group over the summer, the question remains whether they will ride to the rescue once again or throw in the towel. Both groups have written down the value of their stakes in the utility recently. This week’s bond slide may prompt a further reassessment of Thames’ value.

One solution to the crunch may be to sell off some assets, such as the naming and branding rights for “Thames Water”, or to sell off swathes of UK land owned.

Thames licences its logo to companies such as HomeServe, so there also could be scope to make money from a sale. Sir Adrian and Weston will be weighing up how to fix the stink around Thames.

“It’s basically a game of chicken between the Government and the shareholders now on allowed returns versus the need for investment,” says the bondholder.

Thames needs to fix its leaks quickly.

UK
Thames Water could run out of money by April, auditor warns

James Fitzgerald
Sat, 2 December 2023 

Thames water

Thames Water’s parent company could run out of money by next April if its shareholders don’t inject more equity into the debt-laden utility, its auditors have warned.

The group’s auditors, PricewaterhouseCoopers (PWC), said there is “material uncertainty” about its future because there are no firm arrangements in place to refinance a £190m loan held by one of the company’s subsidiary businesses.

Thames Water is set to face scrutiny over its debt levels and financing structure when its results are published on Tuesday.

Parliament’s Environment, Food and Rural Affairs Committee said it’s considering calling the firm’s executives in to explain whether they misled MPs about the company’s financial situation when they gave evidence in the summer.

The panel’s chair, Conservative MP Robert Goodwill, said on Friday: “Recent revelations of Thames Water’s financial situation raise further concerns about the stability of the company’s finances.”

In June, the water company entered emergency talks with the water regulator Ofwat, ministers and government departments after the exit of its chief executive and concerns over its ability to continue operating without a multibillion cash injection.

At the time, regulators suggested the company could be facing a hole of £10bn in its finances.

The business also faces breaching an interest cover covenant on a separate £200m loan by the same date “under a severe but plausible downside scenario,” PWC said. The disclosure was made in the 2022-23 accounts of Kemble Water Holdings, the top company in Thames’ ownership structure.

Thames Water shareholders have pledged to support the company, with a commitment in writing to inject £750m of further equity into the group. But PWC said that “the letter is not legally binding and there are no other firm commitments to refinance the £190m loan”.

In October, Ofwat said the firm had ‘significant issues’ to address. A spokesman said: “Thames Water must address their operational shortcomings and strengthen their financial resilience.”

The regulator has indicated that shareholders will need to put another £2.5bn into the business between 2025 and 2030.

A Thames Water Utilities Limited spokesman said: “We are in a robust financial position and are extremely fortunate to have such supportive shareholders”.

Two Canadian pension plans risk reputation hit from investments in troubled Thames Water
U.K. utility fiasco plunges OMERS and BCI into the midst of potential rescue plan

LA REVUE GAUCHE - Left Comment: Search results for THAMES WATER 

WORKERS CAPITAL

New Brunswick public sector pension plans to be transferred to shared-risk model

The Canadian Press

The New Brunswick government has introduced legislation to transfer five of its defined-benefit public sector pension plans to shared-risk plans, saying the move will ensure the sustainability of plans that have become unaffordable.

Premier Blaine Higgs says that under the legislation, the shift would be mandatory, meaning the proposed law would override provisions in collective agreements that guarantee union members a defined-benefit plan. 

Higgs says his Progressive Conservative government had tried to work out a deal with public sector unions, but he said it became clear the negotiations were headed nowhere as deadlines came and went.

The premier says the majority of government pension plans were shifted to shared-risk models 10 years ago, and since then the plans have performed well, adding 23 per cent to cost of living allowances since their inception.

By comparison, he says, the remaining defined-benefit plans — three of which he described as unviable — added between 16.5 per cent and 20 per cent to cost of living allowances.

The proposed change would affect 7,800 active pension plan members and would allow another 2,500 part-time employees to participate in a pension plan.

This report by The Canadian Press was first published Nov. 29, 2023.

Nasra.org

https://www.nasra.org/files/Spotlight/Risk%20Sharing%20in%20Public%20Retirement%20Plans.pdf

In-depth: Risk Sharing Retirement Plans in Public

Traditional defined benefit pension plan featuring employee contribution rates that may change based on the plan's actuarial experience; a normal retirement age ...

Crr.bc.edu

https://crr.bc.edu/wp-content/uploads/2013/07/slp_33_508.pdf

NEW BRUNSWICK'S NEW SHARED RISK PENSION PLAN

Employer defined benefit pension plans have long advance. The Netherlands certainly offers one model been an important component of the U.S. retirement of risk ...

Vestcor.org

https://vestcor.org/wp-content/uploads/2014/02/Questions-and-Answers-actives-revised-Feb-10-2014.docx-Updated.pdf

Questions and Answers Conversion to the Shared Risk Pension ...

There are two main reasons why defined benefit pension plans (the PSSA is a defined benefit pension plan) around the world are struggling with the issue of ...

Ottawa mulls removing 30% rule for pension fund investing

Iva Poshnjari, BNN Bloomberg

The federal government is looking at removing investing limits on Canadian pension funds buying into domestic companies.
 
As part of the fall economic statement, released on Tuesday, Ottawa said it is exploring the option of removing a 30 per cent cap on pension funds’ voting shares in corporations.
 
“The government will explore removing the '30 per cent rule' from investments in Canada. The 30 per cent rule restricts Canadian pension funds from holding more than 30 per cent of the voting shares of most corporations,” the fiscal document said. 
 
The change will also come with a transparency requirement requiring that all pension plan investments be disclosed to the Office of the Superintendent of Financial Institutions (OSFI), the document added.
 
Pension funds have “potential to boost Canada’s economy and create good careers for people across the country,” the government said in its economic update document.
 
One expert raised questions about how the changes will work in practice.
 
Bill Robson, chief executive officer of the C.D. Howe Institute, told BNN Bloomberg on Wednesday federal government could be addressing critics who say pension funds are not investing enough in Canada, Robinson said. 
 
However, the removal of the 30 per cent rule may not appeal to these types of investors, he added.
 
“If we want to see more investment in Canada by these big institutional investors, it’s not going to be through the public equity markets,” Robinson said. “I’m not sure about this direct ownership in a larger percentage. They need more of the kind of assets that they want to hold.”
 
He pointed to infrastructure, airports, roads and utilities as the preferred sectors pension funds like to invest in, but noted that a lot of these assets in Canada are government-owned.
 
Robinson argued that privatizing these kinds of projects would be more likely increase institutional investment.
 
“Suddenly you’d have this new very attractive asset class for these investors,” he said. 

A long-time Canadian institutional investor is in full support of removing the 30 per cent rule due to the benefits he thinks it will bring for pensioners. 

“It will have no impact in terms of incentivizing pension funds to invest domestically, but what it will do is return more money to pensioners,” John Ruffolo, founder and managing partner at Maverix Private Equity and former CEO of Omers Ventures, told BNNBloomberg.ca in a telephone interview on Wednesday. 

Pension funds already found legal mechanisms to get around the 30 per cent rule, he added, but they incurred costs to do so. 

“It really surprises me that it (the 30 per cent rule) stayed this long,” he added. 

One thing that caught Ruffolo's attention within the fiscal update proposal was the possibility of increased transparency for pension fund investments. 

"That rule is saying to the pension funds 'We can’t force you to invest more in Canada, but we’re kind of  watching,’" he said.