The UK government believes Thames Water can avoid falling into public ownership, according to people familiar with the situation, as talks continue with investors to raise more than £1 billion ($1.27 billion).
(Bloomberg) — The UK government believes Thames Water can avoid falling into public ownership, according to people familiar with the situation, as talks continue with investors to raise more than £1 billion ($1.27 billion).
Ministers and officials have been considering contingency plans for the company, including a temporary state takeover, as rising interest rates swell its large debt burden and the need to improve infrastructure requires fresh investment. But the government now thinks Thames Water can raise the funds on its own, according to the people.
Thames is the UK’s largest water company and its difficulties have raised concerns about the industry more broadly. The sector has become politically toxic as water companies have failed to invest enough to keep sewage out of the sea and rivers, and their large debt burdens have raised questions about the merits of privatization.
The company told investors on Thursday it will release earnings and hold an investor call on July 10. That’s the same day the new chairman Adrian Montague, a city veteran, takes over following the abrupt exit of the chief executive.
The regulator Ofwat is also in the spotlight as bills have risen faster than inflation and crucial investments have been neglected even as companies paid out dividends.
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Ofwat Chief Executive Officer David Black said earlier this week that Thames was likely to need more than £1 billion as the company looks ahead to the next cycle of investments. It raised £500 million from shareholders in March. Talks with investors continue.
But Ofwat Chair Iain Coucher said the demands for greater infrastructure spending in the sector have changed the “investment profile.” Current investors include the China Investment Corporation and Ontario Municipal Employees Retirement System.
Ofwat’s Black reiterated this week that the company had more than £4 billion in liquidity and said the concerns had been “overstated.”
Thames Water’s bonds issued out of holding company Kemble reversed earlier losses on Thursday, gaining about 0.7 pence on the pound. They are now indicated at 58.5 pence, according to data compiled by Bloomberg. They had plummeted when news that the government was looking at contingency plans first emerged.
Placing Thames in the special administration regime, a government system for temporary public ownership, was “not something that would be done lightly,” Black said on Tuesday. He said the threat of the SAR was nonetheless “increasing pressure on debt and equity holders to meet their obligations.”
Thames’ Chief Executive Officer, Sarah Bentley, quit the role abruptly last week and has been partly replaced, on an interim basis, by Cathryn Ross — its regulatory affairs director who was previously the head of Ofwat. It hired Adrian Montague as its new chair last week.
The Treasury didn’t respond to a request for comment. Asked about the latest developments on Thursday, Prime Minister Rishi Sunak’s official spokesman Max Blain referred reporters to Ofwat’s comments.
“Ofwat have been clear that whilst Thames Water has significant issues to address, a need to improve their financial resilience, but they have strong liquidity having received £500 million from shareholders recently,” he said.
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–With assistance from Giulia Morpurgo, Luca Casiraghi, Priscila Azevedo Rocha, Tasos Vossos and Joe Mayes.
(adds govt comment and new earnings date)
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