The board of Thames Water was locked in crunch talks on Wednesday as shareholders prepare to dilute a pledge to inject funds into the company that would secure its survival.
Sky News has learnt that the directors of Britain’s biggest water company met to discuss its financial future after months of talks involving debt and equity investors, lenders, regulators and government officials.
One industry source said that Thames Water‘s shareholders, who include the Universities Superannuation Scheme (USS) and China’s sovereign wealth fund, were poised to conclude that they were unable to contribute hundreds of millions of pounds of promised funding after Ofwat, the industry watchdog, indicated that it would not bow to the company’s demands for a package of regulatory concessions.
Talks were continuing into Wednesday evening, and it remained possible that the picture could change ahead of an announcement expected to be made by the company on Thursday morning.
Thames Water’s shareholders had indicated that they were prepared to commit £3.25bn to the company in the coming years, with the first £750m due to be injected this year.
The investors’ likely decision to water down that commitment is not irreversible and could still be changed if the financial profile of a future investment improved, said a source close to one of them.
The company employs about 7,000 people, and serves nearly a quarter of Britain’s population.
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It is, however, drowning in well over £15bn of debt, with huge interest payments required to service it.
Thames Water’s shareholders also include the Canadian pension fund Omers, Infinity Investments, a subsidiary of the Abu Dhabi Investment Authority, and the BT Pension Scheme.
The utility has been seeking concessions including a 40% rise in consumers’ water bills, an easing of capital spending requirements and leniency on forthcoming regulatory penalties.
If the shareholders ultimately confirm their decision to pull the plug on additional financial support that was announced last year, it would appear to leave the heavily indebted company with few viable options to secure its future.
Last summer, Sky News revealed that Whitehall officials had started drawing up contingency plans for Thames Water’s collapse amid fears that it might not survive.
However, in an investment plan unveiled in October, the company said its shareholders were “stepping up to support…much needed investment, underscoring their commitment to delivering Thames’ turnaround and life’s essential service for the benefit of our customers, communities and the environment”.
“Shareholders have already invested £500 million of new funds in 2023,” it said at the time.
“In addition, they have agreed to provide a further £750m in new equity funding…subject to satisfaction of certain conditions, including the preparation of a business plan that underpins a more focused turnaround that delivers targeted performance improvements for customers, the environment and other stakeholders over the next three years and is supported by appropriate regulatory arrangements.
“Our shareholders have also acknowledged the need for additional equity investments indicatively in the region of £2.5bn in [the next regulatory period].
“In aggregate, this would equate to total equity investment of £3.7bn, the largest equity support package ever proposed in the UK water sector.”
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The £750m referred to in that announcement is now unlikely to proceed without profound regulatory changes, the company is expected to say on Thursday.
If Thames Water did eventually collapse, a temporary nationalisation would involve placing the company’s operating business into a special administration regime (SAR) akin to that used when the energy supplier Bulb collapsed in 2021.
That would ignite concerns in government that the triggering of a SAR could ultimately cost taxpayers billions of pounds.
Ultimately, the Bulb administration cost the public purse a far smaller sum, but water industry ownership restrictions which prevent consolidation mean this figure could be dwarfed if Thames Water was to fail.
Thames Water serves 15 million customers across London and the south-east of England, and has come under intense pressure in recent years because of its poor record on leaks, sewage contamination, executive pay and shareholder dividends.
It is facing multiple fines and regulatory investigations, including into the payment of dividends to Kemble Water, its parent company.
The company has been beset by management turmoil, with Sarah Bentley, its chief executive for the last three years, resigning last summer.
She was replaced by Chris Weston, the former Aggreko chief.
The financial peril in which Thames Water finds itself has sparked calls from critics of the privatised industry to renationalise all of the UK’s major water companies.
A number of the companies have been forced to seek extra funding from their shareholders, with the state of the water industry likely to feature prominently during the general election campaign.
Nearly £1.4bn of the company’s bonds mature by the end of this year, with Ofwat price controls meaning water companies have little scope to generate additional income.
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In total, tens of billions of pounds have been handed to shareholders in water utilities across Britain since privatisation, stoking public and political anger given the industry’s frequent mismanagement.
Earlier this month, Sky News revealed that a group of lenders to Thames Water’s parent company had engaged advisers weeks before a £190m debt held by Britain’s biggest water utility falls due.
Thames Water and a spokesman for its shareholders declined to comment on Wednesday evening.
