The utility is drowning in debt and under pressure from the government, regulators and shareholders. Will it sink or swim? Simon Wilson reports
What’s going on?
The ongoing stand-off between Thames Water, its shareholders, the UK government and industry regulator Ofwat is “beginning to resemble the final scene of Reservoir Dogs”, says The Guardian. How long can the beleaguered utility remain standing in its present form? Who, if anyone, will be prepared to deliver the killer blow – in the form of bankruptcy, nationalisation, or a temporary government takeover and possible carve-up of the business? Thames Water has been under pressure for months, pulled down by its £18.3bn group debt pile and years of financial mismanagement, and pitted against a newly combative regulator, Ofwat, apparently determined to make up for years of lax oversight. The situation escalated in late March when the nine shareholders – led by Omers, a Canadian municipal pension fund, and the UK-based Universities Superannuation Scheme – said they would not inject the £500m of equity they had promised by the end of the month.
Why not?
The company’s shareholders, who also include Chinese and Abu Dhabi wealth funds, say Thames Water is now “uninvestable”. That’s after Ofwat refused to approve a massive 56% real-terms rise in bills by 2030 – nor would it agree to more leniency on dividend rules and fines for pollution. The crisis intensified last Friday when Thames Water’s parent company, Kemble Water Finance, formally notified bondholders that it had defaulted on interest payments on a £400m loan, increasing the chances of a temporary nationalisation (or “special administration regime”). Kemble has asked creditors to hold off for now and let it explore “all options”, including a debt for equity swap that would see lenders take over. But it also has a separate £190m loan due for repayment by 30 April that it can’t pay and probably won’t be able to refinance.
What’s the government doing?
It doesn’t want to get involved, but is busy war-gaming scenarios if it has to. Thames Water going into administration is not what the government wants in an election year, and may not happen – the company insists it has enough cash to keep going for 15 months. But behind the scenes, Whitehall has assembled Project Timber, a cross-department team planning for a Thames collapse and “special administration”, and how to ensure its 16 million customers still
