Thames Water's creditors are prepared to bid for the company even if it is temporarily nationalised under the incoming prime minister, Andy Burnham, according to a report. The group of 100 institutional investors, holding approximately £14bn of Thames's senior debt, continues to discuss a £10bn rescue proposal with officials from the water regulator Ofwat and has held recent meetings.
Rescue proposal faces government opposition
Environment Secretary Emma Reynolds objected to the proposal in mid-June, arguing it would place an "undue burden" on consumers. This objection pushes the UK's largest water company closer to a special administration regime (SAR), a form of temporary nationalisation. Creditors view SAR as a process, not a solution, and would seek to buy Thames out of it, sources said, as first reported by the Financial Times.
Burnham has called for "greater public control" over Thames and indicated nationalisation is an option. The company, serving 16 million customers in London and the Thames Valley, is burdened by £17.6bn of debt accumulated since privatisation. Its future will be a pressing issue when Burnham enters Downing Street, expected within two weeks.
Creditor group includes major investors
The lenders include US hedge fund Elliott Investment Management, run by billionaire Paul Singer, along with Apollo Global Management, Silver Point Capital, BlackRock, and M&G. They have sought to take ownership of Thames without a SAR after Thames's bosses failed to sell the utility to KKR last year. Thames has been staving off financial collapse for nearly three years and could run out of money in October.
The creditor group, London & Valley Water, argues that an SAR would require billions of pounds of taxpayer money, create uncertainty for Thames's 8,000 workers and its supply chain, and have an unknown duration. Their rescue proposal would inject £3.35bn of new equity and provide £3.25bn of fresh debt, with an upfront penalty and redress package of £850m to achieve investment grade status.
Other bidders and potential SAR
Other potential bidders, including Hong Kong-based CK Infrastructure Holdings and Castle Water, have called for Thames to be taken into an SAR. Four years ago, the government recovered almost the entire cost of temporarily nationalising energy provider Bulb after selling it to Octopus for £3bn.
Under an SAR, Thames would be run by an independent insolvency expert on behalf of taxpayers to maintain services before finding a buyer. Its debt and interest payments could be temporarily frozen, but the government would have a duty to seek maximum value for creditors.
A Thames Water spokesperson said: "We continue to work with all parties to reach an agreement that supports Thames Water's long-term financial stability and ensures the uninterrupted delivery of our biggest infrastructure upgrade in 150 years while continuing to meet the needs of our 16 million customers."
A Defra spokesperson said: "Thames Water customers have been let down for far too long, with 15 years of underperformance, increasing serious pollution, and customers left to pick up the bill. The secretary of state has written to Ofwat to outline her early views that she is not convinced the current proposal is good enough for consumers or the environment. We are prepared for any eventuality."
The creditor group and Ofwat declined to comment.
