Thames Water plans £3bn financial lifeline

Britain's biggest water supplier Thames Water has proposed a deal to improve its liquidity, with up to £3 billion ($3.9 billion) of new money to ensure its survival over the next year and beyond.

The struggling utilities giant has put forward a transaction to “extend its liquidity runway” amid continued efforts to restructure its significant debt pile.

Abu Dhabi sovereign wealth fund Adia this month wrote off its nearly 9.9 per cent stake in Thames Water.

The company – which is responsible for water services to 15 million people, mostly in London and other parts of south-east England – unveiled a proposal on Friday to raise the financing lifeline from its creditors to buy it more time to avoid going into special administration early next year.

Thames Water warned in September it could run out of funds in just three months, if the majority of its lenders did not approve further borrowing to keep it going.

Without a restructuring and new funds the heavily indebted utility would likely be temporarily nationalised. Existing investors want to avoid that because a prolonged period under government control could mean they recover less of the money they lent. The deal must now be approved in court.

It has secured a hearing on December 17 to approve the plan, which will see it take on an initial tranche of £1.5 billion of loans that will rank ahead of existing debt. It could also take on a further tranche up to £1.5 billion should it proceed with a regulatory appeal over the prices it can charge consumers over the next five years.

Nationalisation threat

The government has been on standby to place Thames Water, which is at the centre of a scandal over sewage releases into rivers, into a special administration regime to ensure it keeps supplying water in the event of a financial collapse.

But chief executive Chris Weston said on Friday that the new financing bought the company time. “Today’s news demonstrates further progress to put Thames Water on to a more stable financial footing as we seek a long-term solution to our financial resilience,” he said.

Holders of about £10 billion of Thames Water debt have been in talks with the struggling company about providing an interim liquidity facility. The funding will give Thames Water time to restructure its about £16 billion of debt, sources previously told Reuters.

Investors called the company “uninvestible” in March, blaming the regulator for not allowing it to increase water bills sufficiently.

The Competition and Market Authority regulator is expected to confirm in December how much it will allow water companies to increase their bills over the next five years.

Sir Adrian Montague, chairman of Thames Water, said: “The board and leadership team remain focused on stabilising the business, and today’s announcement is an important step in the process to increase its long-term financial resilience.

“There will be further stages and we will continue to work collaboratively with our many stakeholders as we look to attract new equity into the business and seek a final determination that enables the delivery of our ambitious business plan for the next five years.”

Meanwhile, the Financial Times reported that British water retailer Castle Water is looking to acquire a controlling stake in Thames Water, citing people familiar with the matter. Castle Water recently signed a non-disclosure agreement to infuse equity into Thames Water, the FT said, adding that Castle Water aimed to publicly list Thames Water shares in two to three years.