Thames Water creditors and government in stand-off over future
Investors want clarity over potential nationalisation but ministers insist no decision is imminent
Thames Water’s creditors are at an impasse with the UK government, with lenders demanding Andy Burnham clarify any potential renationalisation before they plough in another £2bn needed as soon as October to keep the beleaguered utility afloat.
The new prime minister has previously called for Thames Water to be taken into public ownership but has not set out any concrete plans to do so.
Burnham is now expected to shelve a decision on the future of the UK’s biggest water company until as late as the end of October, leaving the government in a stand-off with Thames Water’s creditors, which include distressed debt funds Elliott Management and Silver Point Capital.
Their rescue plan for Thames Water, which provides essential water and sewerage services to 16mn people in London and the South East, is being assessed by the sector regulator, Ofwat.
Thames Water is already being propped up by an expensive £3bn loan, which is set to run out by December. The additional £2bn loan may need to be sanctioned in the courts, which could take several weeks.
People close to the creditors, known as the London & Valley Water Consortium, said they would need an indication that the government was still committed to a “market solution” before they would make the additional emergency financing available.
Reassurances sought by the creditors could include Ofwat putting their plan — which is backed by Thames Water’s leadership — out for public consultation or simply engaging further with the group, according to people familiar with discussions.
The creditors are yet to meet Angela Eagle, the new environment secretary, and several investors in the group are understood to be impatient for a deal, which would see them formally take over the utility within months and then potentially relist the company on the stock market by 2030.
Burnham is still mulling a temporary renationalisation under the government’s special administration regime, or SAR.
Creditors include more than 100 financial institutions, which are set to make heavy losses if Thames Water is pushed into SAR.
Their spokesperson said: “While we continue to work with government towards a solution, Thames Water’s ongoing funding needs are kept under close review, and any creditor vote in relation to meeting those needs will necessarily reflect confidence that a long-term solution can be achieved.”
To pursue a SAR the government or Thames Water would have to apply to the High Court on the grounds that the company was insolvent or had breached environmental obligations.
This means Burnham may be better off waiting until it runs out of cash to reduce the chance of successful legal claims.
“There are loads of advantages in letting the company go first as the government hasn’t therefore taken precipitative action and therefore cannot be challenged on that act,” said one lawyer close to the discussions.
Another alternative for the government is to use legislation to bypass the usual procedures, as ministers did to nationalise British Steel.
Allies of the prime minister said that he had never planned to push the company into state control immediately. “A Thames Water SAR was never imminent,” said one official.
However, other government insiders admitted that the SAR process had proved “more complicated” than Burnham expected and that a range of options for the company was being drawn up before the Budget on October 28.
Even then they said it was not clear whether a final decision would be taken by the time chancellor John Healey delivers his first financial statement.
If Thames Water entered the SAR, its debt payments and interest would be frozen, freeing up additional cash from customer bills for investment in infrastructure.
Creditors would have a right to be bought out for a court-mandated “appropriate value”.
If Thames Water were to be eventually resold out of the SAR, the government is expected to recoup any additional cash invested in the business, meaning that it is unlikely to cost the government anything, according to lawyers close to the discussions and Thames Water’s own advisers.
Thames Water said: “We continue to enjoy the support of our creditors. We are working constructively to reach an agreement that supports its long-term financial stability.”