Canadian export agency hit by £350mn loss on loans to Thames Water

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Canada’s state-backed export agency has lost about £350mn on loans to Thames Water, the crisis-stricken UK utility that is teetering on the verge of renationalisation.

Export Development Canada, which was established to help Canadian companies do business overseas, disclosed the losses, equivalent to more than half the money it lent to Thames Water, in its annual report and filings to the US Securities and Exchange Commission last week.

The revelations follow a Financial Times report last year that the body had sold loans it had made to Thames Water at deep discounts as the crisis at the utility deepened.

Thames Water’s troubles are a blow for Canadian institutions, among the most important investors in UK infrastructure. The $250bn British Columbia Investment Management Corporation owns 8.7 per cent of Thames Water, which provides water and sewage services to about 16mn customers.

The Ottawa-based export agency originally lent to the utility in 2018 to support an investment by the Ontario Municipal Employees Retirement System, Thames Water’s largest shareholder. EDC said this month that it had eventually provided a total CAD$1.1bn [about £600mn].

Omers, one of Canada’s largest public sector pension funds, disclosed last May that it would write the value of its 31 per cent stake in Thames Water down to zero after major shareholders in the utility, including the Abu Dhabi sovereign wealth fund, said it was “uninvestable”.

Prompted by Omers’s decision to write off its stake, EDC then sold £313mn of top-ranking class A debt, and more than £300mn of riskier class B loans, resulting in the agency losing about £350mn. The class B debt was quoted at prices as low as 27 pence on the pound in the weeks following the sale.

In its SEC filings, EDC said it had sold the loans due to “deteriorating business and financial conditions, combined with the fact that the Canadian entity that we were supporting had exited the investment”.

“As a financial institution that undertakes thousands of transactions a year, we understand that losses can and do occur; it’s part of the reality of doing business,” the agency said in a statement to the Financial Times.

EDC said it had a “solid capital base, a strong record of profitability” and regularly paid dividends to Canada’s government, and had also “facilitated more than 30 introductions for Canadian companies to Thames Water”.

The future of Thames Water — which is struggling under a £20bn debt mountain — is in the balance after US private equity firm KKR this month withdrew a proposal to acquire a stake and inject £4bn.

Royal Bank of Canada has joined the group of senior class A lenders — including US hedge funds Elliott Management and Silver Point — that has been allowed to extend £3bn of expensive emergency financing to Thames. The lenders may end up owning the utility if their equity bid is successful.

UK environment secretary Steve Reed this week said he had “stepped up” preparations to put Thames Water into special administration — a form of temporary renationalisation — if a lack of suitable private sector bids made it necessary.