LONDON (Reuters) – UK utility Thames Water has added a clause to its outstanding bonds ensuring lenders are paid back immediately should the company be nationalised, a move bankers say reflects growing unease about its status in the event of a Labour government.
Britain’s opposition Labour Party leader Jeremy Corbyn leaves his home, as Brexit uncertainty continues, in London, Britain April 8, 2019. REUTERS/Simon Dawson
Labour leader Jeremy Corbyn has said he will nationalise Britain’s water, electricity, gas and railway operators should his opposition party win the next national election.
With the political turmoil triggered by Britain’s protracted exit from the European Union increasing speculation about a snap ballot, lenders are increasingly wary about what a Labour government would mean for their utility investments, bankers and lawyers say.
While references to nationalisation as an event of default in bond documentation for utility companies are not new, bankers say its specific inclusion in the Thames Water bonds shows investors are demanding extra protection.
One banker not party to the deal but involved in structuring other utility bonds said the Thames Water clause had been requested by investors. “We spoke to one of those investors and they specifically asked for it,” he said on condition of anonymity because he is not authorised to speak to the press.
Kemble Water Finance, the holding company for Thames Water, referenced “the occurrence of a nationalisation event” in an updated prospectus for four existing sterling denominated bonds listed on the Irish Stock Exchange that were made public on April 5.
This is the first time that Thames Water or Kemble Water Finance have included a specific “nationalisation put” though an offering circular from October does make reference to the risk of renationalisation of the water industry, as well as listing change of control of the company as an event of default.
Thames Water did not respond to a request for comment.
NULL AND VOID?
Should a nationalisation event occur – defined as a government agency acquiring all or a majority of issued shares – investors will be able, but not obliged, to declare outstanding notes and accrued interest immediately due and payable, according to the prospectus.
That differs substantially from other recent deals such as a Western Power Distribution bond. The banker, who was involved in that transaction, said it required bondholders, in the event of nationalisation, to reach a “critical mass” of 25 percent before demanding their money back.
While it is not uncommon for companies in emerging markets to include provisions, the nationalisation put clause is unusual for British borrowers.
A Labour Party spokesman said, according to the legal framework, “the level of compensation should be decided by parliament.
“The benefits of taking water into public ownership are clear: ending rip-off prices and excessive dividends for private companies and investing in the long-term future of our economy,” he said.
Some capital markets experts are sceptical about whether a nationalisation clause would make much difference.
“It is likely that none of this would work because a Labour government could, pursuant to its manifesto, set about changing the law in order to effectively annul this type of provision,” one London-based capital markets lawyer said, asking not to be named.
“And then simply, for example, swap all cash due to investors for an amount of gilts. So it is probably impossible to ‘Corbyn-proof’ a corporate’s debt in this way.”
Thames Water’s provision covers three notes due 2025 and totalling 210 million pounds ($275 million) , as well as a 149 million pound bond due 2026 and yielding 5.39 percent.
Reporting by Virginia Furness; Additional reporting by William James; Editing by Tommy Wilkes and John Stonestreet