Thames Water creditors willing to bid for utility even if it is nationalised
Future of indebted group is potentially expensive issue for the UK’s presumptive next prime minister
Thames Water’s lenders have said they would bid for the beleaguered utility even if the UK’s presumptive next prime minister Andy Burnham takes it into temporary taxpayer control.
Creditors have signalled their willingness to buy the UK’s biggest water company out of the government’s Special Administration Regime, a form of temporary nationalisation, according to people familiar with their thinking.
The future of Thames Water, which serves 16mn customers and is struggling under near-£20bn of debt, is one of the long-running and potentially expensive items Burnham would find in his Downing Street in-tray.
The utility’s senior creditors, including US hedge fund Elliott Management and private capital group Apollo Global Management, have been attempting to take ownership of Thames Water without a SAR after an emergency rescue by investment firm KKR fell through last year.
The creditors’ proposal is yet to be signed off by regulator Ofwat, despite concerns that Thames Water is due to run out of money in October. Ofwat must submit any deal to a three-month public consultation, while the transaction would also have to be signed off by the High Court. Creditors first went to Ofwat for approval in June last year.
Under the terms being reviewed by Ofwat, the London & Valley Water consortium of senior creditors would inject £3.35bn of new equity into the utility and provide £3.25bn of fresh debt, which could be topped up with more.
However, the government and regulators have known for some time that the creditors have a plan should Thames Water be put into a SAR and that they would still bid for the utility, according to people familiar with the matter.
Burnham, who is expected to become premier within two weeks, has previously said “public ownership” of Thames Water was “what should be done”. But he will face tough choices as a result of the UK’s tight fiscal position, with little headroom for extra spending.
In a statement in May, Burnham was more vague, leaving room for interpretation by saying there should be greater “public control” of utilities.
A SAR could mean the renationalisation of Thames Water does not ultimately cost the taxpayer — as long as a willing buyer can be found so the company can exit the regime. When the government agreed in 2022 to sell energy group Bulb to Octopus for £3bn, it ultimately recovered almost all the cost of temporarily nationalising the company.
Other potential bidders for Thames Water have called for the company to be brought into the SAR, including Hong Kong-based CK Infrastructure Holdings, majority owner of Northumbrian Water. Castle Water, which runs billing services for Thames Water’s business customers, has also indicated it would make a bid for the business.
One government figure said they expected multiple bidders to try to purchase Thames Water if it ended up in a SAR.
As such, it would be welcome if the creditors did bid again to take the company out of state control in that scenario, but it was unlikely to be the only option going forward, the person said.
The London & Valley Water consortium insists that the government remains supportive of its plan for a takeover without placing Thames Water into a SAR. One person close to the creditors said their solution was “the best possible plan for the company”.
“But if the special administration regime is triggered, the creditors will bid,” the person added. “The administrator would want creditors to support the SAR process as they have a duty to protect lender interests.”
Thames Water has been close to collapse for years. Under a SAR, an independent insolvency expert would be appointed to run the business on behalf of taxpayers, keep staff in place and maintain services before it would eventually be sold to new owners.
Thames Water’s debt and interest payments could also be temporarily frozen, allowing cash to be invested in infrastructure, while the government negotiated a writedown of the debt ahead of a sale.
The government is concerned that putting Thames Water into a SAR risks triggering a domino effect among other debt-laden water providers, according to people familiar with the discussions.
It could also take several years to get the business out of a SAR, potentially distracting from work to improve the company’s assets.
The Department for Environment, Food and Rural Affairs said it was “prepared for any eventuality”.
“Thames Water customers have been let down for far too long, with 15 years of underperformance, increasing serious pollution and customers left to pick up the bill,” it said.
The creditors declined to comment. Thames Water said: “We continue to work with all parties to reach an agreement.”