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In the water sector, a drop in infrastructure financing challenges creates ripples across global markets. Export Development Canada (EDC), Canada’s state-backed export credit agency, has reportedly incurred significant losses after selling loans made to the debt-burdened UK utility Thames Water.
The total loans sold by EDC amount to over £600 million. This sum consists of £313 million of top-ranking class A loans (sold in early August 2024), and over £300 million of riskier class B loans (in July). Some of the latter loans were quoted as low as 27 pence in the pound.
The loans were originally made between 2018 and 2022 to support Canadian investment abroad. An EDC spokesperson said, “We have been carefully following the recent challenges encountered by the utility and with the regulator’s recent determination and Omers’ decision to write down its stake, we are assessing the best course of action to manage our loan exposure with the company.”
The effect of Thames Water’s financial troubles permeates across the world. Ontario Municipal Employees Retirement System (Omers) has written down the value of its 31% equity stake to zero; and British Columbia Investment Management Corporation, holding an 8.7% stake, is also exposed.
Furthermore, Thames Water lost its investment-grade credit rating in July 2024, breaching its licensing conditions. The company is now under increased regulatory scrutiny from Ofwat.
Thames Water is struggling under an £18 billion debt pile and, after a year of controversy, faces pressure to upgrade its infrastructure. However, the company is under significant financial pressure: it needs to refinance over £1 billion in loans by the end of 2024.
Thames Water requires £750 million in equity by May 2025 and a further £2.5 billion by 2030. If unable to plug the drain on these financial obligations, the company faces potential renationalisation.
This development underscores the risks associated with state-backed export credit agencies supporting international investments. Particularly in utilities facing financial and regulatory pressures, leakages begin to flow out of control.
