Sinking feeling for Thames Water as investors refuse to pay up

A woman passes the entrance of the Thames Water plant in Twickenham, London, Wednesday, June 28, 2023.(AP Photo/Frank Augstein)

The future of Thames Water is looking uncertain after shareholders refused to honour a £500 million (€585 million) lifeline payment due for payment by 31 March. There are growing concerns the water company could end up requiring a government bailout of billions of pounds.

Kemble Water, the company’s owner, has revealed that, without the expected cash, it will not be able to pay its existing debt payments, nor a £190m (€222 million) loan maturing on 30 April.

Thames Water CEO Chris Weston has reassured consumers that, despite the crisis, the company will still have enough money to cover operating expenses until next year.

The water company has admitted that the shareholders took the decision because it had failed to meet the requirements for the cash injection, which is part of a longer three-year plan to stabilise the company.

The plan involves specific performance improvement indicators relating to the environment, customers and various other stakeholders, as well as regulatory goals.

Thames Water is one of the most important water suppliers in the south-east of England. It has been dealing with increased financial troubles over the past few months as its debt burden increased. This has left it struggling to find enough capital to invest in key infrastructure, such as ponds, pipes and treatment works.

The company has also been pressing the Water Services Regulation Authority (Ofwat) to let it raise water bills significantly over the next five years. Part of Thames Water’s turnaround plan, drawn up last July, estimated the figure required would be around 40%.

Shareholders have, however, been pushing for even higher bills, believing that Ofwat’s regulation requirements for the company make it essentially “uninvestable”.

Despite this, Ofwat has categorically refused to let the utility company raise bills by such an amount, nor has it relaxed the environmental regulations that the company has to meet.

Thames Water said in a shareholder funding update: “Discussions with Ofwat and other stakeholders are ongoing. Thames Water aims to secure a price review 2024 (PR24) regulatory determination that is affordable for customers, deliverable and financeable for Thames Water, as well as investable for equity investors.

“Following receipt of the draft PR24 determination (expected in May/June 2024), Thames Water intends to pursue all options to secure the required equity investment from new or existing shareholders.”

Could Thames Water be nationalised?

Thames Water could potentially be nationalised if it is unsuccessful in raising the funds needed to repay its debts and to make the necessary investments and repairs. The UK government has already highlighted that, if the company goes bankrupt, it will be taking it over.

This is because Thames Water is essential to both the UK’s – and especially London’s – water supply network. Currently, about 15 million households rely on the company for their water.

According to Ofwat, Thames Water does not need to be nationalised at present because it still has enough income-generating capacity for the next 18 months or so.

However, following that, the company will need to come up with a viable way to acquire new capital from both current and new shareholders, if it is to continue with its ambitious turnaround plan.