THE water regulator yesterday moved to tighten the safeguards around water companies as financial buyers eye assets in the sector. Ofwat’s action was triggered by Thames Water’s capital restructuring, announced on Wednesday, which analysts believe will take about £400 million out of the business.
Ofwat said it had no specific concerns over the restructuring but took the opportunity to introduce a “cash lock-up” provision, which means the company cannot transfer cash or assets out of the regulated business to a parent or associated company if its credit rating falls below investment grade.
Such cash lock-ups have been included in the licences of energy companies and will be extended beyond Thames to other water companies.
“It is crucial to the stability of our water industry that each company maintains a robust financial position, in view of the potential harm to consumers that would be caused if a company lacked the resources to carry out its functions properly,” Keith Mason, Ofwat’s director of regulatory finance and competition, said.
RWE, the German owner of Thames Water, announced on Wednesday that it was refinancing and raising more debt within the regulated business. Thames said yesterday that it was “comfortable” with Ofwat’s view of its restructuring and the new cash lock-up condition.
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Ofwat said that it could see “no significant regulatory problems” with the proposed restructuring. The credit rating agencies dropped their rating of Thames by one notch yesterday, from the highest level of investment grade, because of the implications of the water company’s higher gearing levels.