Investors in Britain’s biggest water utility have been asked to sign an equity support letter this weekend pledging substantial sums to try to avert the threat of nationalisation, Sky News learns.
By Mark Kleinman, City editor @MarkKleinmanSky
Britain’s biggest water company is this weekend corralling its shareholders to support a major capital injection as it prepares to publish delayed annual accounts.
Sky News has learnt that Thames Water has secured backing from investors including Omers, the Canadian pension fund, and the Universities Superannuation Scheme (USS) for a commitment to provide new equity.
Further details are expected to be announced to the stock market on Monday morning, according to insiders.
The size of the proposed initial equity-raise was unclear on Saturday although one source said it was unlikely to be greater than the £1bn which shareholders had already indicated they would provide last year.
The equity support letter is non-binding – meaning shareholders could yet change their minds – but is understood to have been seen as a condition of Thames Water’s auditor, PricewaterhouseCoopers, signing off the company’s accounts on a going concern basis.
A previous letter of this nature was cited in the company last September, when it said shareholders had “further evidenced their support for [Thames Water] and its business plan through an Equity Support Letter where the shareholders have committed to hold investment committee meetings (for their respective institutions) as a path to obtaining approval (in the discretion of the investment committee) for funding their pro rata share of conditional commitments in respect of the further £1bn of additional equity which is assumed in TWUL’s business plan.
“Whilst this is not a legal commitment to fund… the [Thames Water] board believes it is reasonable to incorporate this additional £1bn of equity funding in its assessment.”
It was not clear whether the latest written support was materially different to that provided nearly a year ago.
Sky News revealed late last month that the government was drawing up contingency plans for Thames Water’s collapse amid growing doubts about its ability to service a £14bn debt-pile.
‘Contingency plans are in place’
Industry sources believe it will now require an enormous debt-for-equity swap in order to avert temporary nationalisation.
David Black, the Ofwat chief executive, told member of the House of Lords this week that state ownership remained a long way off but acknowledged that Thames Water would probably seek to hike customer bills.
Any temporary nationalisation would involve placing Thames into a special administration regime (SAR) akin to that used when the energy supplier Bulb collapsed in 2021, sparking concerns that it could 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 15m 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.
This week, it was fined £3.3m for discharging raw sewage into river water near London Gatwick Airport.
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The company has been beset by management turmoil, with Sarah Bentley, its chief executive for the last three years, resigning less than two weeks ago.
It has since parachuted the City grandee Sir Adrian Montague in as its chairman, with Monday due to be his first day in the role.
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.
Thames Water is owned by a consortium of pension funds and sovereign wealth funds, some of which have been privately sceptical about delivering additional funding.
Its largest shareholder is Ontario Municipal Employees Retirement System (Omers), a Canadian pension fund, which holds a stake of nearly 32%.
Others include China Investment Corporation, the country’s sovereign wealth fund; the Universities Superannuation Scheme, the UK’s biggest private pension fund; and Infinity Investments, a subsidiary of the Abu Dhabi Investment Authority.
Hermes, which manages the BT Group pension scheme, is also a shareholder.
Thames Water employs about 7,000 people, and serves nearly a quarter of Britain’s population
Nearly £1.4bn of the company’s bonds mature by the end of next year, with Ofwat price controls meaning water companies have little scope to generate additional income.
Read more:
Pressure on ‘rip off’ water industry unlikely to go away any time soon
Ministers weigh contingency plan for collapse of Thames Water
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.
Thames Water was contacted for comment on Saturday afternoon while a spokesman for its major shareholders declined to comment.
