The BT Pension Scheme has written down a £300m equity stake in Thames Water, while a debt investment was sold before having to be written down.

On Monday, senior manager in the pensions team Shan Abdullah said the circa £31bn scheme has written down its shareholding in the water company.  

Abdullah said that “the holding in Thames Water, the equity stake in Thames Water, has been written down, which I believe was about £300m. The scheme also had debt exposure to Thames Water, which was sold off prior to it needing to be written down.” 

The revelation by the scheme follows a write-down of Thames Water by the Universities Superannuation Scheme in 2024. USS warned back then that the experience would guide its future approach to regulated assets and more broadly, blaming inconsistent regulation of the water sector for this outcome. 

While BTPS and USS are exposed to Thames Water, the NatWest Group Pension Fund has been under pressure over its 25% shareholding in South East Water. SEW made headlines when water pipes ran dry for several days over the winter. The NatWest scheme's chief executive Robert Chestnutt said last month that significant regulatory and legislative reform of the water sector “is urgently needed“ and that the water industry is currently not attractive to investors. 

For water companies that become insolvent, a special administration regime applies. Recent changes to the SAR mean that if a water company goes into administration, any government funds which were provided to enable the running of the administration have to be repaid first, ahead of other creditors – such as pension fund investors and even its own pension schemes.   

The next triennial valuation of BTPS will be undertaken as at 30 June 2026. At its last valuation, it had £37.3bn and a deficit of £3.7bn. To address it, the company has been paying £180m annually directly to the scheme and £590m to BTPS or a co-investment vehicle which allows refunds to BT if the scheme does not need the money after 2032. BT can put up to £4.2bn in the vehicle and has paid in £1.9bn to date.

Beleaguered Thames Water has been in talks with a consortium of investors known as London & Valley Water – which includes Elliott Investment Management, Silver Point Capital, BlackRock and M&G, according to the Guardian – about a turnaround plan that would have it issue £3.35bn of equity and up to £6.55bn in new debt. The proposal would also mean that Thames Water’s balance sheet is “recapitalised based on a 30 per cent write-off of Class A Debt and a write-off in full of the Class B Debt and any subordinated debt or equity held by existing shareholders”. If regulator Ofwat accepts the proposal, there would be a public consultation. 

Ofwat does not need government approval, but environment, food and rural affairs minister Emma Reynolds rejected the deal last week. The former pensions minister said the proposal does not go “far enough to protect customers and the environment”, citing “unfair cost” to customers, along with delays to infrastructure investments and environmental improvements. Chair of the Efra Committee Alistair Carmichael criticised her for causing further delays through her statement, although he said that “we share your displeasure at the ‘weak’ deal”.  

Meanwhile, Andy Burnham MP – who could become the UK’s next prime minister in a matter of weeks – has spoken about nationalising Thames Water, a move that current PM Sir Keir Starmer was reportedly keen to avoid.