Embattled Thames Water has received a £5bn bid from Covalis Capital that would result in France’s Suez Group being brought in to manage a restructure of the UK’s largest water company.
The infrastructure investor Covalis Capital has submitted a bid for Thames Water, which has been on the verge of collapse for several months as it struggles with a £19bn debt pile.
Covalis plans to provide about £1bn of the funds upfront and raise a further £4bn from sales of the struggling water company’s assets.
The asset sales could reportedly include breaking up parts of the company, such as its operations in the Thames Valley, and then pursuing a stock market flotation of the restructured business.
Under the plans, first reported by the Financial Times, the UK government would retain a seat on the board and a “golden share”, which would give it certain rights to protect the provider of water and sewage services to 16 million customers across London and the Thames Valley.
Thames Water, which was hit earlier this year by shareholders pulling the plug on £500m of funding, needs £3.25bn to keep running and make infrastructure improvements by the end of the decade.
Suez, which has contracts to run water assets in France and employs 5,000 people in the UK, would act as an operating partner and would not own any shares in Thames Water.
“In exclusive partnership with Covalis, Suez is submitting a non-binding offer to advise and assist Thames Water by leveraging Suez’s expertise in technical advisory and organisational optimisation,” the company said. “At this stage, Suez’s scope of work is limited to an advisory mission to ensure the project’s success and address the specific challenges faced by Thames Water.”
The company added that it attached “great importance” to supporting the operational recovery of Thames Water and its “long-term sustainability in alignment with regulatory expectations”.
However, the GMB national officer Gary Carter said any plan to take over Thames and break it up would be a “disaster for consumers and workers”.
He added: “These bids won’t stop the leaks nor pollution – they will only line the pockets of those who want to break it up. The government has to stop this vulture auction and take control of Thames in the interest of the public.”
Other potential bidders include the Hong Kong-based company CK Infrastructure Holdings, which already owns Northumbrian Water and Castle Water, which is co-owned by the Conservative party treasurer, Graham Edwards.
Final offers are due to be submitted in January after the regulator for England and Wales, Ofwat, has agreed the extent to which water companies will be allowed to raise bills. Water suppliers have been lobbying for higher returns for shareholders and the regulator is due to announce its decision on 19 December.
Thames Water has asked for a 53% increase in bills by 2030. However, Covalis believes its bid would work with a less generous agreement from Ofwat.
Covalis’s bid relies on Thames Water accessing a £3bn emergency loan that will provide the company with instant liquidity and prevent it from running out of cash in the new year.
Existing investors in Thames Water, which include the pension funds Omers and USS, as well as Chinese and Abu Dhabi sovereign wealth funds, have said they believe the business is “uninvestable”.
London-based Covalis has interests in major infrastructure groups across Europe, including the German energy company RWE.
Covalis, which also has offices in New York and Grand Cayman and a low public profile, was co-founded by Zach Mecelis and Peter Murphy in 2012.
Mecelis, the company’s chief investment officer, began his career in New York at the turn of the century before joining GLG Partners in London.
Murphy, who is the head of research, joined GLG in 2003 and began working with Mecelis a year later.
The pair and their team moved to Noble Group in 2009, where they launched Arc Asset Management, before moving on to found Covalis three years later.
