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UK must court Gulf investors despite Thames Water crisis

UK Gulf investment UK Government
UK minister Lord Dominic Johnson said long-term foreign investors must be incentivised to improve Thames Water and other utility companies 
  • UK minister says investment essential for infrastructure ambitions 
  • Abu Dhabi owns 10 percent stake in troubled Thames Water
  • UK partnerships with Bahrain, Qatar and UAE continue to develop

The UK’s investment minister has said that the country must continue to incentivise foreign investment in its utilities sector, despite ongoing concerns that Thames Water, which is part owned by Abu Dhabi, could be on the verge of collapse.

In an interview with AGBI this week, Lord Dominic Johnson, a minister of state in the UK’s Department for Business & Trade, said: “The Thames Water discussion is a healthy one for us to have.

“You have to factor in the investment structure that will incentivise international and domestic investors to invest in our utilities for the long term. It’s a balance that needs to be achieved.”

Thames Water, which serves around 15 million customers, is seeking to raise an additional £1 billion ($1.3 billion) in equity to help upgrade its infrastructure, while it also grapples with the rising cost of its £14 billion debt pile.

“The company is talking to investors about securing new equity,” David Black, CEO of the water services regulation authority Ofwat, told BBC radio on July 5. 

Industry figures have warned that the situation at Thames Water could deter overseas investment into the UK. 

Black confirmed some were now reluctant to invest.

Around 10 percent of Thames Water shares are owned by a subsidiary of the Abu Dhabi sovereign wealth fund.

The company is not alone in accruing huge debts in the industry. While its 80 percent debt ratio is the highest among all water utility companies, Ofwat’s industry reports show that South East Water has a ratio of 74.8 percent while Affinity Water has a ratio of 74 percent.

Of the UK’s 17 water companies, only three had a gearing ratio below 60 percent – which the regulatory authority considers a healthy benchmark for debt levels.

UK Gulf investmentThames Water
Thames Water is seeking to raise over $1 billion in equity to help upgrade its infrastructure

Johnson said that the need to balance competing domestic interests with incentivising long-term investment applies not just to Thames Water but to all UK utility companies, such as the sewage works and the electricity grid.  

He cited as an example the need for investment in the infrastructure to bring onshore the “extraordinary amount of power generating from the offshore wind farms”.

Johnson said continued international investment was essential if Britain is to achieve its infrastructure ambitions. 

Investing in the UK

The Gulf states have already committed to investing considerable sums in the UK.

On Monday Bahrain and the UK signed a Strategic Investment and Collaboration Partnership (SIP). Bahrain’s private sector plans to invest more than $1 billion into the country to drive greater cooperation in clean technology, business services and manufacturing.

In May the UK and Qatar signed a SIP which will see Qatar invest up to $12 billion in the British economy over the next five years in sectors including technology, healthcare, infrastructure and clean energy.

The same sectors are the focus of the $13.8 billion, five-year SIP that Abu Dhabi’s wealth fund Mubadala announced in September 2021. So far it has invested around $6.5 billion.

Masdar, the UAE’s government-owned clean energy company, has a 25 percent stake in the 30 megawatt Hywind Scotland project – the world’s first offshore floating wind farm. 

In March Johnson told AGBI that the UK’s decision to scrap a planned tax on sovereign wealth funds highlights the importance the government places on Gulf investors. 

“I’m pleased that we’ve decided to maintain the status quo,” he said.