Investment firm Covalis Capital has made an offer for Thames Water, in a plan which could see the embattled utility giant broken up into smaller businesses.
Covalis’s bid involves bringing in French company Suez to help it run Thames Water as it sells off large chunks of the supplier’s assets.
The offer involves £1 billion up front, plus another £4 billion from planned asset sales and refinancing.
The sales could include selling individual pieces of infrastructure such as tunnels, then leasing them back.
But they could also involve hiving off entire regions that Thames Water serves, such as the Thames Valley.
The new owner would then list what remains of Thames Water on the stock market.
Covalis is a utility investment firm.
It has interests in major infrastructure groups across Europe such as German energy giant RWE.
Suez, meanwhile, runs major water services in France and has about 5,000 workers in the UK.
It would act in an advisory role, helping current management to overhaul Thames Water’s operations and installing things such as more up-to-date IT and leak monitoring systems.
However, Suez would not own any shares in Thames Water.
At this stage, Suez's scope of work is limited to advisory mission to ensure the project's success and address the specific challenges faced by Thames Water
The Government would hold a so-called golden share in the company, giving it a seat on the board and other rights.
Covalis’s bid is not thought to depend on bill hikes as steep as those requested by Thames Water’s current management.
Thames Water has asked regulator Ofwat to let it raise average bills by 53% over the next five years, compared with current levels.
However, the bid is dependent on Ofwat allowing Thames Water to slow a required programme of investment in upgrading its infrastructure and systems for the next few years, which bidders are thought to view as unachievable.
Ofwat will give its final verdict on Thames Water’s five-year business plan on December 19, including proposals for customer bill hikes and investment.
A spokesperson for Suez confirmed that it had entered an “exclusive partnership” with Covalis on the bid.
They said its role would be to “advise and assist Thames Water by leveraging Suez’s expertise in technical advisory and organisational optimisation”.
They added: “At this stage, Suez’s scope of work is limited to advisory mission to ensure the project’s success and address the specific challenges faced by Thames Water.”
Covalis’s bid comes after Castle Water, a firm founded by former investment banker John Reynolds and co-owned by Conservative Party treasurer Graham Edwards, was set to make an offer.
Castle Water is understood to be proposing to pump in around £4 billion into Thames Water in return for a majority stake.
Debt-laden Thames Water, which is the UK’s biggest water supplier, had asked possible investors to put forward indicative bids by the end of Thursday December 5.
The utility giant is looking to secure a multibillion-pound cash injection to stave off nationalisation.
Other possible investors preparing to put in bids reportedly include Hong Kong firm CK Infrastructure Holdings and private equity giant KKR, which together own stakes in Northumbrian Water.
It is thought that Thames Water and its adviser Rothschild have also sounded out investment giants Brookfield Asset Management and Carlyle Group.
Thames Water, which serves about 16 million people, is in the grip of a funding crisis and only has enough cash to continue operating until early next year.
It needs at least £3.3 billion in equity over the next five years, while it is also more than £16 billion in debt.
The group has been at the centre of growing public outrage over the extent of pollution, rising bills, high dividends, and executive pay and bonuses at the UK’s privatised water firms.
Regulator Ofwat has appointed an independent monitor to supervise Thames Water as it attempts a turnaround.
But the process for an equity injection cannot be finalised until after Ofwat’s determination on December 19.
As well as seeking to raise equity, Thames is also in the middle of a debt restructuring and recently appointed Julian Gething – a director of turnaround firm Alix Partners – as chief restructuring officer to oversee the process.
Thames Water still needs the emergency funding plans to be passed in court though, and is aiming for a December 17 hearing.
Covalis and Thames Water declined to comment.
