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Uncertainty is still hanging over a crucial £750mn equity injection needed by Thames Water until regulators give investors “comfort” over its business plan, according to Britain’s largest water utility.
The monopoly, which provides water and sewerage services to about 15mn households in London and surrounding areas, has previously said that shareholders — which include private equity, sovereign wealth and pension funds — have agreed to inject £750mn by 2025.
But Alastair Cochran, finance director and interim co-chief executive, said on Tuesday that the £750mn infusion was still to be confirmed, despite the submission of the company’s business plan to regulator Ofwat in October.
“Investors are looking for some comfort from Ofwat that it will support that business plan,” he said. “They will take a pragmatic view depending on the feedback they get.”
The company has asked Ofwat for a 40 per cent increase in customer bills by 2030 to underpin the £750mn investment. Shareholders are waiting to hear about the bill increases and have asked for restrictions on regulatory fines for missing pollution and other performance targets.
Thames Water has come under pressure after facing larger financing costs on its £14.7bn debt pile, as well as bigger labour and energy bills, and an outcry over sewage pollution. The government has drawn up contingency plans for a temporary renationalisation.
The utility announced on Tuesday that pre-tax profits fell 54 per cent to £246mn in the six months to September 30 while revenues climbed 12 per cent to £1.2bn in the period. Pollution incidents and customer complaints also increased.
Thames Water said it would embark on a new three-year turnaround plan, admitting that “performance was not where it needed to be”. In addition to the £750mn, it has already asked for a further £2.5bn by 2030, which would be the largest equity injection into any water company since privatisation 34 years ago.
The long wait for equity injections is adding to fears over the financial sustainability of the UK’s largest privatised water utility. Those concerns have deepened since the Financial Times revealed last week that Thames Water had presented a £515mn shareholder loan to its unregulated parent group, charging 8 per cent interest, as fresh equity. The parent, Kemble Water, then cascaded £500mn of this borrowed money down the chain of holding companies that own Thames Water into the regulated utility as equity.
Thames Water insists that the money came into the “ringfenced entity” as equity and “there is no obligation to repay this money”. It says it has total liquidity of £3.5bn at the end of September, down from £4bn in March.
Nick Hood, a corporate restructuring adviser at Opus Business Advisory Group, said the £515mn to Kemble was “categorically a loan and is shown as such in the accounts”.
He added: “The point is that the vulnerability of Thames Water as the actual supplier to consumers depends on the stability of the whole group.”
MPs are weighing an inquiry amid accusations that the company misled parliament over the state of its finances in hearings earlier this year.
Ed Davey, leader of the Liberal Democrats, described the company as a “slow-moving car crash”.
“The board must resign with immediate effect and must be held accountable for financial and regulatory cover-ups as well as the destruction of local environments,” he said.
Britain’s largest water monopoly has a byzantine corporate structure with multiple layers, only one of which is regulated by Ofwat. Auditors PwC have warned there is “material uncertainty” as to whether Thames Water’s parent company, Kemble Water Finance Limited, can continue as a going concern as it is yet to agree a refinancing deal on loans due in April.
Cochran insisted on Tuesday that Kemble was a “separate company”.
“Our job is to worry about Thames Water but clearly we care about our shareholders. I’m sure that it [Kemble] will be working hard to refinance,” he said.
Thames Water paid £37.5mn in dividends to Kemble Water Finance Limited and one of its subsidiaries to service debt obligations in October, the company’s six-monthly accounts showed. Thames Water insists no external dividends were paid and will not be paid until 2030.
The largest shareholder, the Canadian pension fund Omers, took a 30 per cent writedown on its stake last year, adding to concerns over investors’ willingness to inject equity into the business.
