Thames Water parent Kemble stands out as the sector’s most at-risk company due to complexities with financing, rating agency Fitch has warned.
As a result, Kemble is the UK’s most vulnerable water company, with its BBB/negative rating lower than the likes of Severn Trent PLC (LSE:SVT) and United Utilities Group PLC (LSE:UU.).
“While Fitch does not rate Thames Water Utilities Limited, we focus on [its] ability to pay dividends and support the debt servicing at Kemble,” the agency said.
Mounting issues are weighing on the outlook for the company, including higher interest on debt repayments and increasing pressure over sewage spills and risk going unchecked amid rumours of renationalisation.
Though Thames Water is aiming to raise £2.5 billion by 2030, these fines and the rumours threaten to undermine investors' willingness to provide this, Fitch warned.
As the supplier of over 15 million people, including in London, Thames Water made headlines in June as it emerged the company was on the verge of collapse.
Given its 70% debt-to-equity ratio, higher interest rates have hit the supplier’s finances, alongside inflation-driven costs.
To make matters worse, months of scrutiny over the sector’s all-too-common practice of discharging sewage into the UK’s waterways has led to a heap of penalties and likely tougher regulation being placed on water companies.
Companies, including Thames, face a prospective £800 million worth of claims in class action lawsuits over the sewage spills meanwhile.
Fitch said the further investment needed is conditional on Thames Water’s environmental turnaround, which carries a “high execution risk”.
“Shareholder support depends mainly on a business plan that underpins a turnaround,” the rating agency added.