Thames Water bosses faced fury today as shareholders withheld the injection of a planned £500 million in much needed ‘survival’ funding, sparking a call for the firm to be put into special administration.
This morning, a Government spokesperson suggested nationalisation could be back on the table, MPs called for an emergency rescue, shareholders attempted to pass the blame to Ofwat, the regulator called on the Thames board to “pursue all options”, the utility’s holding company warned it could default on its debt and City traders sold off its bonds at discount prices.
It comes just months after it was revealed the Government had drawn up plans for the nationalisation of the debt-laden utility. Under those plans, the company would be placed into a special administration regime. It was hoped that the multi-billion-pound funding plan would ensure that Thames Water would stave off emergency nationalisation, but the collapse of the equity investment deal raises new fears that the Government may need to swoop in.
Thames bosses played down the risk of special administration and reassured the utility’s 16 million customers, noting that the firm still has enough cash left to last for 15 months.
CEO Chris Weston - the £850,000-a-year former military man brought in last year to turn Thames around - said: “I'd like to reassure our customers that, despite this announcement, it is business as usual for Thames Water.”
But its holding company Kemble today revealed that - “absent an investible proposition for the Shareholders to provide new equity” - it would default on a £190 million debt payment due on 30 April.
The utility said that after discussions with regulator Ofwat, its plan for 2025-30 was now “uninvestable”. Weston noted that the returns shareholders would get for injecting equity funding were lower than the returns on debt.
Thames has struggled to afford the massive improvements required to cut down sewage spills, while also servicing its huge debt pile, without a dramatic increase in water bills for Londoners.
Thames Water had wanted to hike Londoners’ water bills by 40% in order to pay for major infrastructure improvements and cover the risk of big fines from the watchdog, but Ofwat rejected these plans. Thames is continuing to work with the regulator in the hopes of getting either the bill increase, reduced spending requirements or lower risk of fine risks.
A Government spokesperson said Downing Street prepares “for a range of scenarios”, suggesting it was still considering a bailout.
Liberal Democrat MP for Richmond Park Sarah Olney called for the Government to step in. She said: “The government has a choice: either bail them out with taxpayer money or put Thames Water under new ownership to steady the ship.”
Shadow environment secretary Steve Reed said: “The Government and regulators must do everything in their power to stabilise the company and ensure new investment comes through to fix the broken sewage system without taxpayers being left to foot the bill.”
In the City, investors sold off Kemble debt, in the fear of a default. The yield, or effective interest rate on the market, on one lower-priority Kemble bond rocketed to 120%, in a sign investors feared collecting the full value may be unlikely.
Thames Water’s nine shareholders - all non-UK companies - today issued a joint statement that said: “After more than a year of negotiations with the regulator, Ofwat has not been prepared to provide the necessary regulatory support for a business plan which ultimately addresses the issues that Thames Water faces. As a result, shareholders are not in a position to provide further funding to Thames Water.”
