Canadian investors concerned about future of Thames Water as Britain mulls nationalization

Canadian financial institutions have landed in the crosshairs of a major nationalization debate in Britain, raising concerns among creditors over the fate of the country’s largest water provider.

Thames Water, which serves about 16 million customers in England, has been teetering on the edge of collapse for years. Large Canadian banks, pension funds and asset managers have grappled with managing their links to the flailing utility, and business leaders have warned that public ownership of the utility could harm investment in Britain.

The Canadian companies that have had exposure, or are currently exposed, to Thames Water include the country’s largest lender, Royal Bank of Canada RY-T, pension funds Ontario Municipal Employees Retirement System (OMERS) and British Columbia Investment Management Corporation (BCI), asset manager Fiera Capital Corp. FSZ-T, and Export Development Canada (EDC).

Thames Water is wrestling with £20-billion in debt and has faced mounting public outrage over sewage spills. Its management has been attempting to restructure its operations.

Earlier this year, Andy Burnham, just before he became Prime Minister, said Thames Water should be nationalized. In September, he said he would introduce legislation to repeal a ban on the public ownership of water companies.

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Canada’s largest lender is among the consortium of more than 100 financial institutions that proposed a £16-billion rescue package for Thames Water.

RBC chief executive officer Dave McKay credited Prime Minister Mark Carney for his plans to implement tax deductions for capital investments, and urged Britain to follow suit while warning against nationalizing the water utility.

“When the U.K. flirts with nationalizing your Thames Water, with putting on a bank tax, with putting a capital tax on the wealthy or housing, it sends a signal you want to harvest your economy, not grow it,” Mr. McKay said in an interview with the Sunday Times in September.

During the bank’s third-quarter earnings release in August, RBC set aside $120-million in provisions – money that banks set aside to cover potential defaults – on a single loan, which CIBC analyst Paul Holden said in a research note may be related to Thames Water.

TD analyst Mario Mendonca noted that RBC’s impaired provisions for credit losses rose $85-million from the previous quarter, and said the increase is likely linked to the water utility.

RBC declined a request for comment.

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As Britain contemplates nationalizing its infrastructure, Mr. Carney has been advocating for opening up Canada’s four largest airports to private investment in a bid to raise tens of billions of dollars.

Mr. Carney said that the potential nationalization of Thames Water could result in losses for oversees investors and warned Britain that it could harm foreign investment in the country, according to a report from The Telegraph Sunday, citing sources familiar with the matter.

The Prime Minister’s Office did not respond to a request for comment from The Globe and Mail.

In July, Thames Water said it could continue for about 12 months but cautioned that there is “material uncertainty” over its long-term future.

A group of distressed debt investors and financial institutions, known as London & Valley Water, is attempting to take control of the utility to avoid nationalization.

London & Valley Water did not respond to a request for comment from The Globe.

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Credit-rating agencies have been monitoring the exposure of Canadian pension funds to the water provider. OMERS and BCI invested in Thames Water in 2017 and 2006, respectively.

OMERS took a 31.8-per-cent stake in the company and BCI took a position with 8.7 per cent. Then, between 2021 and 2023, OMERS continually marked down the value of its investment in Thames Water. The pension fund ultimately wrote off Thames Water in May, 2024.

It is unclear whether BCI has maintained its stake.

The water provider “has been struggling under the weight of excessive debt. With shareholders declining to inject additional capital, the company appears close to defaulting on its debt payments,” credit-rating agency DBRS Morningstar said in a 2024 note assessing OMERS and BCI’s links to the utility.

“Thames Water’s failure has highlighted the level of complexity and risk considerations that can affect a seemingly safe investment.”

In 2017, Fiera Capital Corp., through its infrastructure arm, increased its equity investment in Thames Water and took a seat on the board.

Canadian export agency EDC booked losses after lending hundreds of millions of pounds to Thames Water. In its 2024 annual report, EDC said it had provided a total $1.1-billion to the utility. Its provisions for credit losses that year included about $630-million in losses in the utilities sector from its exposure to Thames Water.

“Due to deteriorating business and financial conditions, combined with the fact that the Canadian entity that we were supporting had exited the investment, we recorded a provision for credit losses in 2024 and subsequently sold the loan assets,” the EDC said in the report.