Thames Water board locked in crisis talks about £3bn funding plan
Shareholders refuse to confirm they will make fresh equity injection
The board of Thames Water, Britain’s largest water company, was locked in crisis talks on Wednesday after shareholders refused to confirm they would provide about £3bn of fresh equity that is necessary for its survival.
Thames Water, which provides water and sewage services to about a quarter of the UK population, needs shareholders to indicate they will stand by plans to inject additional equity but had not received their backing at the board meeting that was running into Wednesday evening, two people briefed on the situation said.
One person close to the talks said the situation was fluid and a company announcement could be made on Thursday.
Thames Water is trying to avoid going into the government’s special administration regime but ministers have been on standby for the possibility of its collapse.
The company is the most leveraged in the sector and has come under increasing financial strain as higher interest rates have raised the cost of servicing £18.3bn of group debt.
Last year, Thames Water shareholders agreed to invest £750mn this year and more than £3bn by 2030 — but subject to certain conditions.
The company is lobbying industry regulator Ofwat to agree to sharp increases in water bills as well as concessions on regulatory fines and an agreement that it can continue to pay dividends.
Thames Water’s shareholders — which include pension funds Omers and USS as well as the Chinese and Abu Dhabi sovereign wealth funds — are dissatisfied with progress in the discussions with Ofwat, according to people familiar with the matter.
One person close to Thames Water described the talks as a game of brinkmanship with the regulator and the government.
“Equity is saying it won’t give any more money unless Ofwat blinks and Ofwat is refusing,” added this person.
“It’s a big ask for a shareholder to write a £500mn cheque with no chance of getting it back,” said an investor in another UK water company.
“They have Ofwat over a barrel. They are saying we will give you equity but only if you give us better returns.”
Ofwat launched an investigation last year into a £37.5mn dividend paid by Thames Water to its parent company Kemble.
Kemble, which has no other source of income other than bills paid by Thames Water customers, requires the dividends to service its debt. Kemble needs to refinance a £190mn loan that is due for repayment by the end of April.
A £400mn publicly traded Kemble bond that expires in May 2026 was trading at 26 cents on the dollar on Tuesday afternoon, indicating market nerves over the company’s future.
The government is keen to avoid a nationalisation of Thames Water in an election year and is optimistic that, even were Kemble to collapse, it can restructure the group debt or bring in new investors to recapitalise the regulated operating business, according to officials.
But some lawyers and investors have disputed that assertion, saying Thames Water’s troubles may be too entrenched to be fixed.
Thames Water and Kemble did not immediately respond to requests for comment.
Why good news for Japan may be bad news for hedge funds
After three decades of corporate stagnation, there’s fresh momentum — but not everyone is pleased
When the Tokyo stock market closed on Wednesday afternoon, the sun was shining, a weekend of cherry blossoms lay in prospect and the once leaden-footed Topix index — the broad benchmark of corporate Japan — had skipped to within inches of its all-time high.
Tricky times, in other words, for some of the world’s biggest hedge funds. Good news, especially when fuelled by a fundamental change in the nature of a market, can sometimes be very tough going.
The problem, if it can be called that, is that Japan’s equity market is in excellent shape. Arguably, in terms of trajectory and narrative, the best shape it has ever been. Some weeks ago, the Nikkei 225 Average surpassed its December 1989 peak. It has gained nearly 22 per cent since the start of the year and has continued (as it did yesterday) to log new highs.
In a whirl of share buybacks, new merger and acquisitions rules, successful activism and top-down pressure to improve returns, companies, the government and the stock exchange itself have done enough to convince the world that this time is different. There are always plausible ways it could unravel but the story of positive change is holding.
For the better part of three decades, the story was very different. Once the late-1980s bubble had burst, and the economy entered its tussle with bad loans, deflation and corporate stagnation, the Tokyo market became an avatar of weariness and dreariness. There were moments, of course, when the whole thing moved decisively in one or another direction, but these stints were mostly shortlived.
Japan’s stock market, for all its sophistication, breadth and liquidity, became characterised by its tendency to return to the long-term mean. Other big markets would trade for extended periods on momentum; Japan did not. Colourful things would happen, but the gravitational pull of beige always won, and usually in a matter of days.
Crucially, though, the reliability of Japan’s “nothing to see here” market offered specific opportunities to certain hedge funds. Rapid, predictable mean reversion is very useful if you are running a long-short strategy and your risk managers are obsessed with maintaining neutrality in all things — whether that be country, market, sector or factor risk. For a certain type of hedge fund — a breed now dominated by the huge multi-manager platforms such as Citadel, Millennium, Polymer and others — neutrality reigns supreme and Japan, accordingly, has been very appealing.
Part of that appeal has been the depth of the market: you want neutrality but also a portfolio full of idiosyncratic risk (think of Pigeon, the baby-product manufacturer whose shares used to rise when an imperial pregnancy was announced) of a type that Japan is quite good at. There are thousands of companies to trawl for potential longs and shorts, and, despite the stagnancy of the market, plenty of stock-specific incidents to produce big movements on individual shares.
Generations of market participants learnt to sell their winners and buy the underperformers, said one manager whose hedge fund is now in urgent search of a new strategy.
Everything worked beautifully until about 18 months ago when the Japanese market became, in effect, momentum-driven. With the whole market rising at the same time, market neutrality has been far harder to maintain. Some funds continue to thrive but many of the multi-manager platforms, according to dozens of brokers and asset allocators, have found the rally to be the hardest environment they have operated in for many years.
And the momentum increasingly looks like more than just mood music. Shareholder activism is moving stock prices, and, critically, the fear of activism is pushing Japanese companies to pre-emptively reward shareholders with non-core asset sales and share buybacks. For pickers of stocks to sell short, this is nerve-racking, says one market strategist: you never know when a previously bad-looking company is going to do the right thing, announce a buyback and watch its shares fly.
Big, long-only money is coming into the Japanese market chasing high-quality companies with improving governance standards, exposure to global growth and a “not China” story. Significantly, momentum-chasing global investors who previously sought their fix in China are turning to Japan, say brokers, and bringing the momentum with them.
The new money coming in, explains one aggrieved manager, has a growth mindset that prefers to add to its winners and buy more on good news — the antithesis of the zero-sum mindset of many of the long-short platforms that have dominated trading in Japan equities for so long.
After Hours Summary: CXM +7.6%, RH +7.6%, VRNT +6.1% higher on earnings; MLKN -12.1%, FC -10.2%, CC -9.5% lower on earnings
After Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: CXM +7.6%, RH +7.6%, VRNT +6.1%
Companies trading higher in after hours in reaction to news: SNOW +2.9% (CEO bought 31542 shares worth ~$5 mln), SGMT +1.7% (completes Phase 1 hepatic impairment study with denifanstat), FOXF +1.6% (to move to S&P SmallCap 600 from S&P MidCap 400), VFC +0.9% (to move to S&P SmallCap 600 from S&P 500), GDYN +0.7% (introduces GenAI-powered data migration starter kit), ALLY +0.5% (names new CEO), MACK +0.3% (receives $225 mln milestone payment from Ipsen)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: MLKN -12.1%, FC -10.2%, CC -9.5% (also determines internal control was not effective), VNET -4.4%, FUL -3.7%, BRZE -2.6%, RUM -2.1%, JEF -0.1%
Companies trading lower in after hours in reaction to news: PRAX -5% (stock offering), SSP -4.8% (to be removed from S&P SmallCap 600), SNX -3% (9 mln share offering by selling shareholders and concurrent share repurchase), ATS -2.8% (C$163 mln secondary offering), ABOS -2.2% (files $200 mln mixed shelf securities offering), MODV -2% (to be removed from S&P SmallCap 600), LMT -1.9% (awarded $440 mln U.S. Navy contract), PYXS -1.9% (stock offering by selling shareholders), ALK -0.5% (HA and ALK enter into timing agreement with DOJ relating to merger), FET -0.5% (stock offering by selling shareholders), DFS -0.3% (CEO to resign), XRAY -0.3% (to move to S&P MidCap 400 from S&P 500), PRKS -0.1% (shareholders approve $500 mln buyback authorization and amended agreement with Hill Path Capital)
Closing Stock Market Summary
Today's trade had a positive bias. Advancers led decliners by a 9-to-2 margin at the NYSE and by a 5-to-2 margin at the Nasdaq. The upside moves were driven by an ongoing inclination to buy on weakness following yesterday's afternoon slide.
Some normal consolidation activity in heavily-weighted names kept a limit on index gains in the early going. By the close, though, many stocks were participating in upside moves, sending the major indices sharply higher. The market ultimately closed at or near session highs, which had the S&P 500 at a fresh all-time high.
NVIDIA (NVDA 902.50, -23.11, -2.5%), Meta Platforms (META 493.86, -2.03, -0.4%), Microsoft (MSFT 421.43, -0.22, -0.1%), and Broadcom (AVGO 1318.79, -12.70, -1.0%), which are all sitting on large gains since the start of the year, were left out of the broad afternoon rally.
Meanwhile, the Russell 2000 continued its recent outperformance today, climbing 2.2%. The small cap index benefitted from strength in regional bank stocks, which also boosted the SPDR S&P Regional Banking ETF (KRE) (+3.7%). Other bank stocks outperformed, too, as evidenced by a 3.2% gain in the SPDR S&P Bank ETF (KBE).
Regional banks received some extra attention after Standard & Poor's lowered the outlook on First Commonwealth Bank (FCF 13.80, +0.47, +3.5%), M&T Bank (MTB 144.80, +3.57, +2.5%), Synovus Financial (SNV 39.82, +1.32, +3.4%), Trustmark (TRMK 28.06, +0.81, +3.0%), and Valley National Bancorp (VLY 7.90, +0.29, +3.8%) to Negative from Stable due to ongoing stress in commercial real estate, but that didn't deter buying activity in the space.
On a related note, the S&P 500 financial sector jumped 1.2%. Eight of the 11 S&P 500 sectors gained more than 1.0% from yesterday's close. The rate-sensitive utilities (+2.8%) and real estate (+2.4%) sectors were the top performers, responding to a drop in yields.
The 10-yr note yield settled four basis points lower at 4.20% and the 2-yr note yield fell three basis points to 4.57%.
- S&P 500:+10.0% YTD
- Nasdaq Composite: +9.3% YTD
- S&P Midcap 400: +9.1% YTD
- Dow Jones Industrial Average: +5.5% YTD
- Russell 2000: +4.3% YTD
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index declined 0.7% with purchase applications falling 2% and refinance applications down 0.2% from the prior week
- Weekly EIA Crude Oil Inventories had a build of 3.17 million barrels; prior week showed a draw of 1.95 million barrels
Thursday's calendar features a slate of economic releases, including:
- 8:30 ET: Q4 GDP -- third estimate (Briefing.com consensus 3.2%; prior 3.2%), Q4 GDP Deflator -- third estimate (consensus 1.7%; prior 1.6%), Weekly Initial Claims (consensus 213,000; prior 210,000), and Continuing Claims (prior 1.807 mln)
- 10:00 ET: Final March University of Michigan Consumer Sentiment (consensus 76.5; prior 76.5) and February Pending Home Sales (Briefing.com consensus 2.1%; prior -4.9%)
- 10:30 ET: Weekly natural gas inventories
J&J gets new opportunity to contest evidence linking talc to cancer
NEW YORK, March 27 (Reuters) - Johnson & Johnson (JNJ.N), opens new tab will get a new chance to contest the scientific evidence linking talc products to ovarian cancer, a federal judge ruled on Wednesday, potentially disrupting a federal court case that consolidates 53,000 lawsuits.
Amazon Invests $2.75 Billion in AI Startup Anthropic
Tech giant’s total stake grows to $4 billion, its largest investment in another company
Amazon.com AMZN 0.56%increase; green up pointing triangle said it has invested an additional $2.75 billion in the artificial-intelligence startup Anthropic, a major investment from a tech giant looking to compete with Microsoft, Google and others in the AI arms race.
Amazon has now invested a total of $4 billion in Anthropic after making a $1.25 billion initial investment in the company in September. Amazon said it has a minority ownership position in Anthropic.
The funding marks Amazon’s largest investment in another company since the online retailer was founded nearly 30 years ago.
Tech companies and venture capitalists have been throwing money at AI startups following the success of Open AI’s ChatGPT, with investors and analysts increasingly believing the latest boom in AI is sustainable. More than $29 billion was invested in generative AI companies last year, according to research firm PitchBook.
Anthropic, which was founded in 2021, offers an AI assistant called Claude that competes with OpenAI’s ChatGPT. The company is led by siblings Dario and Daniela Amodei, who both used to work at OpenAI.