Here is Webster’s dictionary definition of a Greek tragedy:
“A drama in verse or prose and of serious and dignified character that typically describes the development of a conflict between the protagonist and a superior force (destiny, circumstance, or society) and reaches a sorrowful or disastrous conclusion”.
Spot on for Thames Water, eh? We are not far now from the disastrous conclusion to the slowly unfolding drama of this company’s collapse.
This week, Moody’s cut the credit rating of some Thames debt to junk. It’s likely that this admission of reality will be followed by rival S&P, putting the business in breach of its operating licence. Crocodile tears are being shed at the company and in the City, trying to bounce the new government into taking it over, and sticking over ÂŁ18bn of debt onto the taxpayer.
The Universities’ pension fund (USS) lost no time in exposing its beggar’s sore, warning that its Thames losses would make it reluctant to back utilities in future. The fact is that the scheme’s 20 per cent stake was a dud investment, and has looked that way to many outsiders for several years.
A government takeover would be an outrage. There is no need for nationalisation. Thames is a cash-generating business as a monopoly supplier of a vital resource, and the tragedy is the result of the gimcrack financial engineering of the previous owners a decade ago. So who should pay? There really should be no dispute. The shareholdings are already effectively worthless. Look to the banks (or the subsequent buyers of the Thames debt) which foolishly lent so much money. They must take a write-down of their investments.
They should be “invited” to swap some of their debt for new shares, with the proportions depending on where the debt is in the pecking order. With £8bn (say) converted into fresh equity and debt down to £10bn (say), Thames suddenly becomes an attractive investment which would be floated on the Stock Exchange. Instead of counting the months to a sorrowful and disastrous conclusion next May, the company would have the resources to fix the leaks and tackle the sewage crisis.
The bondholders are no doubt hoping that their lawyers are cleverer than those acting for the government, but now that Thames is formally in breach of its operating licence, the government’s hand is strong enough to resist. The question should not be who bears the pain, but how to force the bondholders to agree to share it among themselves. They should get on with it.
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