-

Thames Water secures £750m lifeline to avoid nationalisation

Thames Water, responsible for supplying water to 15 million households in London and the South East, has successfully secured a £750 million capital infusion from its shareholders. The funds aim to address the immediate financial …

Thames Water, responsible for supplying water to 15 million households in London and the South East, has successfully secured a £750 million capital infusion from its shareholders. The funds aim to address the immediate financial challenges faced by the utility company.

However, the amount falls short of the targeted £1 billion fundraising objective, exposing a significant £2.5 billion shortfall in Thames Water’s comprehensive turnaround plan by 2030.

In an effort to bolster the company’s financial position, shareholders have demonstrated their commitment to inject additional capital. Nevertheless, the funding comes with certain conditions, including the likelihood of increased customer tariffs and heightened performance expectations. Thames Water acknowledges that to fully implement its turnaround strategy, £2.5 billion in funding will be required by 2030.

The recent capital injection will provide much-needed relief to Thames Water’s finances, which came under scrutiny following the abrupt departure of Chief Executive Officer Sarah Bentley and revelations of the company’s struggles in servicing its £14 billion debt burden.

Although nationalisation plans have been prepared as a contingency by the government, interim CEO Cathryn Ross assured that Thames Water is not on the brink of a special administration. She emphasised the rigorous criteria that must be met before a company is subjected to special administration.

Thames Water’s fundraising details were disclosed in its annual report, which revealed a reduced loss of £30.1 million for the fiscal year ending in March compared to £973 million in the previous year. Penalties for failing to meet water quality and leak targets surged from £35.5 million to £82.3 million during the same period.

The annual report also unveiled that former CEO Sarah Bentley received over £500,000 last year as compensation for unpaid bonus payments owed by her previous employer, Severn Trent.

As of the end of March, Thames Water possessed £4.4 billion in cash and committed funding. The £750 million cash injection, which is set to be disbursed by April 2025, will be contributed by owners such as the Ontario Municipal Employees Retirement System, the UK’s Universities Superannuation Scheme, and China Investment Corp.

Thames Water has highlighted that the additional funding is contingent upon meeting certain conditions. These include the preparation of a business plan that supports a more focused turnaround strategy, delivering performance enhancements for customers, the environment, and other stakeholders over the next three years.

David Black, Chief Executive Officer of Ofwat, the water regulator, expressed concerns about Thames Water’s long-term funding requirements. He cautioned that the initial funds being raised would not suffice, as the company needs to “de-gear” its business by reducing debt while simultaneously improving its performance. Black admitted that Ofwat should have taken earlier action to prevent water companies from accumulating substantial levels of debt. Since privatization in the late 1980s, the water industry has accumulated over £60 billion in borrowings and distributed more than £70 billion in dividends.

Thames Water was acquired in 2006 by a consortium led by private equity firm Macquarie. The Australian investment company faced criticism for increasing the company’s debts while paying out £2.7 billion in dividends. However, Macquarie no longer holds a stake in Thames Water.

Recently, Thames Water was fined £3.3 million for a “reckless” incident that occurred six years ago. During this incident, millions of liters of untreated sewage were discharged into rivers near Gatwick Airport.

Sign up for Investomania

Subscribe to the Investomania newsletter to have our daily recap delivered directly to your inbox.

No spam. Unsubscribe anytime.