Thames Water plans £2bn shareholder payouts despite threat of collapse

thames water

Thames Water is planning to pay out £2bn in dividends over the next decade despite growing fears over the company’s collapse, The Telegraph can reveal.

In a revised business plan submitted to regulator Ofwat, bosses of the troubled supplier said they intended to keep rewarding shareholders even as financial pressures push it closer to bankruptcy.

According to figures buried in a spreadsheet containing more than 100 tables, Thames Water plans to pay around £2bn in dividends between now and 2035 – consisting of payouts of up to £290m a year.

This also includes around £860m in dividends between next year and 2030. Shareholders had pledged to invest more than the £750m by 2025 before they cut off funding last month.

Thames Water’s attempt to continue investor payouts during a time of turmoil is understood to have stunned senior industry figures.

In recent years, Thames Water has made payments to its unregulated parent company Kemble, which is owned by a consortium of shareholders, including sovereign wealth funds from Abu Dhabi and China.

This cash is then used to service the company’s debt rather than being sent directly to its investors.

However, these latest revelations will fuel political scrutiny as Thames Water tries to persuade Ofwat to approve controversial plans to raise household bills to £627 by 2030, up from £433 now.

The planned increase, which Ofwat must approve, could determine the fate of Britain’s biggest water supplier as it risks running out of cash within 15 months.

Pressure has been building at Thames, which provides water and sewage services to 16m households, as the company battles an £18bn debt pile.

This was built up over the past decade as former owners, including Australian banking giant Macquarie, took out huge dividends.

During Macquarie’s ownership of the business from 2006 to 2016, the bank took out around £2.7bn, including £656m in one year alone.

Fears of a potential collapse at Thames Water have led to the Government drawing up contingency plans for a taxpayer-backed bailout, codenamed Project Timber.

In a bid to stave off nationalisation, bosses at the company are seeking higher bills to spend billions of pounds on creaking infrastructure, such as leaky pipes and sewage spills.

Thames Water said on Monday that it plans to invest £21.7bn in tackling environmental issues, up from a previous pledge of £18.7bn in October.

However, the latest revelations regarding payouts will raise concerns given that Ofwat is already investigating a separate payment of £37.5m, made by Thames Water’s operating company to Kemble last year.

Thames Water has long argued that it has not paid out a dividend to external shareholders since 2017, stressing in its latest business plan that it will not reward them with payouts before 2030.

However, it has continued to filter payments to Kemble, which is teetering on the brink after defaulting on its debt earlier this month.

Ofwat, which makes no distinction between internal and external dividends, has previously announced powers to block payouts if a water company’s financial health is at risk.

These new powers have enabled closer scrutiny of Thames Water, which has been lobbying the Government and Ofwat to let it pay dividends and raise bills.

Chancellor Jeremy Hunt has already criticised the company’s rescue plans, as he said earlier this month that investors in the company have “an obligation to sort out the mess”.

An Ofwat spokesman said: “Since October we have been in discussions with all companies, checking on their proposed plans and seeking further information.

“There has also been further information published in the last few months clarifying companies’ statutory commitments.

“Both these factors have required companies to review their proposed plans and revise their expenditure forecasts to reflect what would be required to fully comply with all statutory requirements.

“We note that Thames Water has now published an update to its business plan. We will publish our draft view on companies’ plans on 12 June.”

A Kemble spokesman said: “Shareholders committed to supporting a further £3.25bn of investment on top of the £500m provided last year.

“They pledged not to take any dividends out of the business for themselves until a turnaround was delivered, and not before 2030. Any dividends paid by Thames would be used solely to finance the debt required to support the investment in the network.”

Thames Water declined to comment.

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