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A Canadian state-backed export agency has been hit with losses after lending hundreds of millions of pounds to Thames Water, as the fallout from the crisis at Britain’s largest water company spreads.
Export Development Canada (EDC), which was established to help Canadian companies do business overseas, has in recent weeks sold loans it made to the utility, according to investors familiar with the trades, adding that the agency offloaded them at deep discounts.
The crisis at Thames Water deepened in March when its shareholders backtracked on a plan to inject more funds and declared it “uninvestable”.
The company, which provides water and sewerage services to London and the surrounding areas, is straining under an £18bn debt pile and faces pressure to upgrade its decaying infrastructure.
Ottawa-based EDC originally lent to the utility in 2018 to support an investment in Thames Water by the Ontario Municipal Employees Retirement System [Omers], one of Canada’s largest public sector pension funds. Omers recently wrote down the value of its 31 per cent stake in the company to zero.
EDC’s website states it is “dedicated to helping Canadian companies of all sizes succeed on the world stage”. Its services to Canadian exporters include trade knowledge, risk mitigation and providing global connections.
Between 2018 and 2022 it lent hundreds of millions of pounds to Thames Water to provide “support for Canadian direct investment abroad”, naming Omers as the Canadian group involved, according to documents published by the agency.
Although prompted by Omers’ decision to take a stake in Thames Water, the loans EDC made to the utility were separate from the sums invested by the pension fund.
In early August, EDC sold £313mn of top-ranking class A debt through an auction, according to four investors. An auction announcement seen by the Financial Times does not name EDC, but the dates on which the loans were originally signed match a number it provided to Thames Water.
EDC also sold over £300mn of riskier class B loans the previous month, according to two investors familiar with the matter. This lower-ranking debt has been quoted as low as 27 pence in the pound in recent weeks.
“We have been carefully following the recent challenges encountered by the utility and with the regulator’s recent determination and Omers’ decision to write down its stake, we are assessing the best course of action to manage our loan exposure with the company,” EDC said in a statement to the FT.
“As part of careful management of our financing portfolio, we have processes in place to address these situations and minimise impacts to EDC,” adding that it would not speculate on any specific debt disposals.
In addition to making loans to support Omers’ investment, EDC said it had also “facilitated more than 30 introductions for Canadian companies to Thames Water”.
Canadian institutions have been among those most exposed to Thames Water’s struggles. British Columbia Investment Management Corporation, British Columbia’s biggest public sector pension fund, has an 8.7 per cent stake in the company.
Last month, Thames Water lost its investment-grade credit ratings, putting it in breach of its license conditions and pushing the group closer to renationalisation. Even the utility’s top-ranking bondholders are now braced for haircuts.
The company has accepted more scrutiny from regulator Ofwat to avoid potentially hefty fines for breaching its license.
It has more than £1bn of loans that need refinancing by the end of the year, only some of which can be rolled over. Although it has enough cash to last until May, this relies on it raising £750mn in equity by then, and a further £2.5bn by 2030.
Additional reporting by Gill Plimmer
