Barclays Plc (BARC, Financial) and HSBC Holdings Plc (HSBA, Financial) are facilitating opportunities for investors to short the debt of Thames Water, the UK's biggest water utility company, which is currently facing significant financial difficulties.
According to insiders, the credit desks at these major banks have begun to offer services that allow clients to speculate on the decline of Thames Water's debt. This move comes in the wake of Kemble Water Holdings Ltd., the parent company, defaulting on its financial obligations due to a refusal from shareholders to inject additional capital after a dispute with the water regulator, Ofwat.
There has been a notable increase in short interest in Thames Water bonds, particularly those maturing in 2028, where short interest has escalated to nearly 18.5% from just 1.26% at the beginning of the year, as per S&P Global Market Intelligence data.
While providing platforms for short selling is a routine aspect of banking operations that generates significant revenue, it does not necessarily mirror the banks' viewpoints on Thames Water's predicament. However, their involvement in these transactions links them to the ongoing financial turmoil within the utility provider, responsible for supplying water to a quarter of England, including London.
HSBC (HSBA, Financial), Barclays (BARC, Financial), and Goldman Sachs (GS, Financial) have opted not to comment on these developments.
The situation at Thames Water reached a critical point last month when Ofwat declared it would not endorse the company's forthcoming five-year plan. This plan proposed a 40% hike in bills to accommodate infrastructure improvements and growing debt commitments. The UK government, under Prime Minister Rishi Sunak, has urged Thames Water to independently resolve its financial woes, resisting calls to place the company into special administration.
In anticipation of potential restructuring discussions, a consortium of Thames Water bondholders has commenced hiring financial advisors.
The financial strain on Thames Water has also affected other water utilities, with bonds from Southern Water and Northumbrian Water experiencing adverse impacts. For instance, the spread on Southern Water’s April 2040 bonds has widened significantly from its initial pricing.
