Engineers from the Thames Water leak detection team unload equipment from their van during the night shift on Wednesday, May 2, 2023, in London. The chief executive of Britain’s biggest water supplier resigned with immediate effect on Tuesday.
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LONDON – British regulators took the unprecedented step of placing the water utility for London and areas of southern England into special measures on Thursday as the company seeks new investor funding to shore up its future.
Regulator Ofwat said Thames Water would come under increased scrutiny and must review its plans to improve operational performance, supply and financial resilience. Ofwat has approved £16.9 billion ($21.8 billion) in spending for the company to invest in improving customer services and the environment – less than the £19.8 billion Thames Water had requested.
Meanwhile, the regulator has allowed the company to increase customers’ bills by an average of £99 a year over the next five years, almost half of what it had requested.
Thames Water said in a statement on Thursday that its spending proposal was designed to “maintain a reliable supply of safe, high-quality drinking water and to divert and effectively treat sewage in London, the Thames Valley and the Home Counties now and in the future”.
The company disputed Ofwat’s statement that its business plan was “inadequate”, but said it would provide the regulator with further evidence to support its proposals, noting that a final decision would not be reached until December 2024.
The crisis-hit company has more than 16 million customers and is trying to avoid consequences including temporary nationalization or dissolution. This spring, shareholders rejected its bid for a £500m capital injection while its parent company, Kemble, failed.
Thames Water is owned by a consortium of institutional shareholders across pension funds, sovereign wealth funds and private equity. Its largest outside shareholder is the Ontario Municipal Employees Retirement System, one of Canada’s largest pension plans.
The firm’s arrears have ballooned over the past two decades, and on Wednesday it reported net debt of £15.2 billion for the year to March 2024. It said that under the current base case scenario it would not run out of cash by the end of the year. May 2025, provided it is able to continue to draw on its revolving credit facilities and utilize all cash resources.
Thames Water – and other UK public services – have come under heavy criticism for a sharp rise in sewage discharges into Britain’s waterways, including the River Thames.
Thames Water chairman Adrian Montague said on Wednesday the company’s plan would attract “much-needed investment”, adding he believed it was possible to “turn this business around”.
In the company’s results, Montague said the UK water industry requires significantly higher investment in the coming years and is competing for debt and equity capital in a “highly competitive market at a time of increased regulatory and political uncertainty and risk”.
An aerial view of sewage being treated at Thames Water’s Longreach Sewage Treatment Works on August 10, 2023 in Dartford, United Kingdom.
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Achieving a “market-driven solution” will require working with regulators and the government to achieve a turnaround and ensure investors are incentivized to continue investing in UK water firms, he added.
S&P Global dealt the company another blow on Wednesday as it put its Class A and Class B debt at risk of a downgrade, which it said reflected a belief that Thames Water may not be able to maintain adequate liquidity, sparking market fears of a downgrade. “unsolicited” rating.
The company’s position is under further pressure due to a required major capital investment program, S&P said, which will offset free operating cash flow and limit its ability to reduce leverage.
Correction: The headline of this article has been updated to accurately reflect Thames Waters’ total debt converted into US dollars.