The most productive long-term plan for Thames Aqua is to get it back into the market safely. nils pratley

How bad are the issues at Thames Aqua? So wicked that Ofwat has invented antiquated software – a “turnaround oversight regime” – to get a handle on monetary and operational missteps.

The regulator’s move is clearly the right one. Aqua Corporate, under its fifteenth renowned government, recently filed a marketing strategy that was deemed “inadequate”. Its board can no longer provide formal recognition that statutory tasks on environmental efficiency can be met. And keep in mind, Thames has already, in fact, been alienated through homeowners who believe the company is “investable.” So, certainly, increased regulatory scrutiny seems like a minimum requirement until a workable solution is found.

However the clever section of Ofwat had a view on how the Thames would eventually emerge from special measures. The corporate will want to demonstrate that it can possibly maintain an “adequate level of financial flexibility”. This could include “imposing a limit on the amount of debt the company can take on, splitting the business into two or more water companies, or considering a public listing to secure additional equity”.

The extreme of them – the return to a safe market – is the only point on which attention should be focused. If Ofwat has in any case concluded that a privatized Aqua device in England and Wales works better if companies are listed on the London secure market, then thank you. This column has been discussing (again and again) the merits of a list.

Why? First, safe market buyers would never have afforded the over-leverage imposed on Thames when Macquarie bought the company in 2006. You cannot go out into a crowd area with more than 80% participation. The three companies that remain in the market – Severn Trent, United Utilities (in the North-West) and Pennon (owner of South West Aqua) – have never strayed far from the 60%-ish regulatory norm.

Second, securitized markets improve monetary transparency. You do not have any preservation companies within the Cayman Islands, or involve tax-minimized financing automobiles above the regulated entity.

Third, the percentage values ​​and six-monthly congestion reporting cycle provide a blackmail signal of trouble ahead. Incompetent and failed managements tend to be removed early.

Fourth, a crowd record guarantees close proximity to the crowd: buyers should buy the stock if they want. In a post-Macquarie move, the Thames capture consortium has incorporated huge free budgets from Abu Dhabi and China, to whom UK aqua corporate has far reaching reach on a spreadsheet.

It has to be mentioned that the path back to a safe market does not look easy for Thames. The first step will undoubtedly need to involve a debt-equity transformation to uncloud the deck and shed the burden of £15.2bn of borrowings. This process could either happen immediately or be implemented through specific management – ​​with one or the other option far more likely than Thursday. One need not feel sorry for the Thames bondholders who will suffer a setback in financial reconstruction: they have also contributed to the difficult emergency.

By way of additional demonstration of the relative merits of safe market ownership, take a look at how quoted companies emerged from Ofwat’s five-yearly assessment. Severn Trent and Pennon’s business plans were the only two in the region to be rated “excellent” and United Utilities was given the mid-range “standard”.

No one is pretending that all three are blameless. All have faced problems with air pollution and leakage (notably United in Windermere; Pennan in Devon with outbreaks of diarrhea and vomiting) and one of the significant government bonuses is unclear (think Liv Garfield in Severn. ). Secure possession of the market is not everything.

However, this is because evidence over many years shows that listed companies find it easier to respond to regulatory incentives than non-listed companies. In a personalized tool designed to praise relatively better performers and punish poorer performers, this is a noticeable level. Certainly, there is an honest argument that regulators have indeed lost control of the entire personalized display boom following the take-private leveraged buyout boom of 2004-08.

The ancient Labor Executive has to be kept in mind. It is well prepared in opposition to the nationalization of aqua companies – and rightly so. However, this could be a driver if it pressures additional companies back into the safe market.