Thames Water’s board was locked in key talks on Wednesday as shareholders prepared to dilute their pledge to inject capital into the company to ensure its survival.
Directors of Britain’s largest water company met to discuss its financial outlook after months of talks with debt and equity investors, lenders, regulators and government officials, Sky News has learned.
An industry insider said Thames WaterThe university’s shareholders, including the University Pension Scheme (USS) and China’s sovereign wealth fund, are preparing to conclude they cannot provide the hundreds of millions of pounds of funding promised to satisfy the company after industry regulator Ofwat said it would not buckle. Demands for a package of regulatory concessions.
Negotiations continued into Wednesday night, and things could still change ahead of the company’s expected announcement Thursday morning.
Thames Water shareholders have said they are prepared to inject £3.25 billion into the company over the next few years, with the first £750 million to be injected this year.
A person close to one of the sources said the decision by investors to potentially downplay the commitment is not irreversible and could still change if the financial picture for future investments improves.
The company employs around 7,000 people and serves nearly a quarter of the UK population.
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December: Thames Water fails to pay £190m
However, it is mired in debt of more than £15bn and needs to pay huge interest payments.
Thames Water’s shareholders also include Canadian pension fund Omers, Abu Dhabi Investment Authority subsidiary Infinity Investments and BT Pension Scheme.
The utility has been seeking concessions, including a 40% increase in water rates for consumers, easing capital spending requirements and leniency on upcoming regulatory penalties.
The debt-laden company appears to have few viable options to secure its future if shareholders ultimately confirm their decision to end the additional financial support announced last year.
Last summer, Sky News revealed that Whitehall officials had begun formulating Thames Water collapse contingency plan for fear it might not survive.
However, in an investment plan unveiled in October, the company said its shareholders were “stepping up to support … much-needed investment, underscoring their commitment to delivering Thames’ turnaround and delivering essential services for the benefit of our customers, Community and Environment”.
“Shareholders have invested £500m of new capital in 2023,” the company said at the time.
“In addition, they have agreed to provide a further £750m of new equity financing… subject to certain conditions being met, including the development of a business plan to support a more targeted transformation to provide customers, the environment and other Sexual performance improvements. Stakeholders will take action over the next three years, supported by appropriate regulatory arrangements.
“Our shareholders also acknowledge the need for additional equity investment, expected to be £2.5bn. [the next regulatory period].
“In total, this equates to a total equity investment of £3.7 billion, making it the largest equity support package ever proposed by the UK water industry.”
The company is expected to say on Thursday that the £750m mentioned in the announcement is currently unlikely to proceed without significant regulatory changes.
If Thames Water ultimately collapses, temporary nationalization would involve placing the company’s operations into a special administration regime (SAR), similar to the one used when energy supplier Bulb collapsed in 2021.
This will raise concerns in the government that triggering the SAR could end up costing taxpayers billions of pounds.
Ultimately, the bulb government spent far less public money, but water industry ownership restrictions hampering consolidation mean that figure could be dwarfed if Thames Water collapses.
Thames Water, which serves 15 million customers in London and southeast England, has come under intense pressure in recent years due to its poor record on leaks, sewage contamination, executive pay and shareholder dividends.
The company is facing multiple fines and regulatory investigations, including over dividend payments to its parent company, Kemble Water.
The company has been plagued by management turmoil, with Sarah Bentley, chief executive for the past three years, stepping down last summer.
Her successor is former Aggreko CEO Chris Weston.
Thames Water’s financial crisis has prompted calls from critics of privatization in the sector to renationalize all the UK’s major water companies.
With many companies forced to seek additional funding from shareholders, the state of the water industry is likely to be a focus during the election period.
The company’s nearly £1.4bn of bonds are due to mature at the end of this year, and Ofwat’s price controls mean the water utility has little scope to generate additional revenue.
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Shareholders in water companies across the UK have collectively received tens of billions of pounds since privatization, sparking public and political outrage given the sector’s frequent mismanagement.
Earlier this month, Sky News revealed that a group of lenders to Thames Water’s parent company had hired advisers just weeks before £190m of debt held by Britain’s largest water company came due.
Spokespeople for Thames Water and its shareholders declined to comment late on Wednesday.
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