The Universities Superannuation Scheme Ltd (USSL) the largest private pension fund in the UK and Thames Water’s second largest investor, has written the value of its holding down from £955.8 million in 2022 to £364.4 million in 2023.
USSL holds a 20% stake in Kemble Water, Thames Water's ultimate parent company, primarily through its subsidiary Church Water Investment Ltd.
According to Church Water Investment Ltd’s financial report and accounts for the year ended 31st March 2023 published on Saturday 30 December 2023, the fair value of its investment is now put at £364.4 million, compared to £955.8 million in 2022.
Church Water, which was incorporated on 11 July 2017 with the principle activity of an investment holding company, is wholly owned by L3 Investment Holdings LP Partnership – the Partnership’s sole limited partner is USSL.
As at 31 March 2023 an outstanding intercompany loan due to L3 Investment Holdings stood at £904.54 million. The loan is payable on demand and bears no interest charge.
The principle risk of the company is identified in the report as “the performance of its underlying investment.” Church Water’s fundamental purpose and objective is to hold the investment on behalf of the Scheme and therefore the main risk from a going concern perspective relates to the performance of its investment.
Total loss for the year was £591.3 million (2022: profit of £69.8 million), described as “primarily due to an unrealised change in the market value of the investment.”
The net liabilities of the company are now £540 million, compared to net assets of £51.4 million in 20222, with the fair value of its investment now put at £364.4 million, compared to £955.8 million in 2022.
The accounts state:
“The company will continue to hold its investment for the foreseeable future.”
In their assessment of going concern, the report says Directors of Church Water have considered the company’s net liability position, concluding that it is able to meet short-term and future obligations. It also states that the Directors have received confirmation from USSL – the Ultimate Parent Company – that it intends to continue to provide financial support for the foreseeable future. The Directors have also received confirmation from L3 Investment Holdings LP, that it does not intend to seek repayment of the £904.54 million intercompany loan “until such time as the company has sufficient resources to settle the loan.”
In its Independent Auditor Report, Ernst & Young LLP’s conclusions relating to Church Water’s going concern basis states:
“Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Company’s ability to continue as a going concern for a period of 12 months from when the financial statements are authorised for issue.” However, it goes on to caution that because “not all future events or conditions can be predicted, the statement is “not a guarantee as to the Company’s ability to continue as a going concern.”
Commenting in July 2023 on peress speculation regarding to Thames Water’s financial position at that time, USSL said:
“Our diversified approach to investing means that we do not expect the current events surrounding Thames Water to have a material impact on the funding position or contribution rates coming out of the 2023 valuation, nor on the security of members’ promised pensions.
“We remain of the view that, with an appropriate regulatory environment and a strong business plan, the long-term objective of repairing important UK infrastructure and paying pensions to our members are in strong alignment.”
The write down by USS of almost two-thirds of the value of its holding in Thames Water follows a significant reduction in the value of the investment by the water company’s largest investor, Canadian-headquartered Ontario Municipal Employees’ Retirement System (Omers). Last year Omers, which owns a third of Thames Water, reported that its stake in Kemble had fallen from a valuation of £979 million at the end of 2021 to about £700 million in 2022.
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