Macquarie’s ownership of Thames Water has been the subject of widespread media coverage, some of which contains errors and mischaracterisations.
This case study provides an overview of our period of ownership, for further information you can also access a factsheet which directly addresses key points and provides a data table drawing on publicly sourced information alongside a letter to stakeholders on the subject.
Rapid industrialisation and population growth during the early 1800s put pressure on the River Thames, with sewage from approximately two million Londoners emptying into the city’s main water source. Following the ‘Great Stink’ of 1858, Londoners invested in the city’s first modern sewerage system and expanded the clean water supply system – installing an extensive network of cast iron mains to connect homes across the city to clean drinking water and sewerage services.
Thames Water was privatised in 1990 after more than a century under public ownership. By this point, the Victorian installations continued to form a core part of London’s water and wastewater network and Thames Water was struggling to keep pace with required investment levels.
In 2006, Macquarie Asset Management led a consortium of long-term infrastructure investors and pension funds to acquire Thames Water from RWE, with Macquarie-managed funds acquiring approximately a 48 per cent ownership interest.
On taking control of the business, it was clear that a material step-up in investment was required. Thames Water’s network of aging pipes was leaking 862 megalitres of water each day, the company scored 22 out of 100 in Ofwat’s (the sector regulator) security of supply index, and more than 1,300 properties were affected by low pressure.1 Thames Water also faced issues with pollution, with its sewage treatment works 95 per cent compliant with regulatory standards.1
To prepare Thames Water for the next chapter in its history, Macquarie and its co-shareholders set in motion a programme to significantly increase investment in the network.
This strategy saw an average of more than £1 billion invested each year between 2006 and 2017 to maintain, upgrade and expand the network. With investment levels almost two-and-a-half times higher than when Thames Water was under public ownership and one-and-a-half times what was achieved following privatisation through the 1990s and early 2000s, the business was able to begin critical upgrades to improve operational performance.2
At the time of Macquarie’s initial investment, Thames Water had also expanded into business lines outside its core focus, including transport maintenance services, real estate and international markets. Macquarie partnered with the company to divest non-core areas of the business – helping management focus on the provision of water and wastewater services to the people of London and the Thames Valley.
During the period that Macquarie-managed funds owned a stake in Thames Water, the company undertook a record level of investment, despite the returns allowed by the sector’s economic regulator Ofwat being reduced.
As a result of this record investment in the network, which was financed with both debt and equity, Thames Water’s regulated asset base more than doubled from approximately £6 billion in 2006 to approximately £13 billion in 2017.2
To fund this investment programme, Thames Water’s debt grew from approximately £6 billion in 2006 to approximately £11 billion in 2017.5 The growth of Thames Water’s debt was proportionate to the growth of the regulated asset base and the regulated company maintained an investment-grade credit rating in excess of the minimum threshold set by Ofwat. Following the Global Financial Crisis, Macquarie supported Thames Water as it reduced the ratio of its debt to the value of its assets.