In a desperate bid for survival, Thames Water, Britain’s largest water company, is racing to secure a staggering £3 billion financial lifeline as it stares down the barrel of a looming cash crisis. According to insider sources, the embattled utility giant could see its coffers run dry as early as December, prompting a frenzied scramble to shore up its finances and chart a course through the turbulent waters ahead.
A Lifeline in Troubled Waters
Thames Water’s chief executive, Chris Weston, has characterized the sought-after funds as a “liquidity bridge” designed to stabilize the business and buy precious time to secure long-term investment. However, this lifeline comes at a steep price, with the new debt expected to balloon the company’s already staggering debt pile to an eye-watering £17.9 billion by March of next year, according to Alastair Cochran, Thames’s chief financial officer.
In a telling sign of the shaky market confidence in the company, the new debt is expected to come with double the borrowing costs Thames had previously secured from markets. The company has acknowledged that the yield on its new debt, hovering around 15%, is in line with other transactions “of this nature,” a stark reminder of the precarious position it finds itself in.
The Specter of Nationalization
Looming over Thames Water’s struggle for survival is the specter of temporary nationalization, known as the special administration regime (SAR). This drastic measure, aimed at maintaining essential services for consumers, could be triggered if Thames becomes insolvent and fails to raise the necessary funds. The prospect of SAR has ignited a public debate about whether Thames’ existing creditors should have their loans wiped out in such a scenario, adding yet another layer of complexity to an already fraught situation.
Thames previously warned that it could run out of cash by the end of December after revealing in September that it had about £1.6bn left.
– According to a close source
Jumping Through Hoops
To secure the desperately needed funding, Thames Water must navigate a gauntlet of challenges and approvals. The company will need the backing of a lion’s share of its creditors, 75%, as well as the green light from the courts. The proposed liquidity extension deal has already garnered support from creditors representing £6.7 billion of debt, with other creditors given until November 11 to rally behind the proposal.
The fate of Thames Water also hangs on the decisions of Ofwat, the regulator for England and Wales. Ofwat is set to make a final determination in December, or possibly January, on how much water companies can raise bills over the next five years. Thames has argued for an average annual bill increase of 53% by 2029-30, but if Ofwat blocks this, the company has the option to appeal to the Competition and Markets Authority (CMA) to challenge the decision.
A Delicate Balancing Act
The injection of fresh cash, if secured, would allow Thames Water to continue with planned investments, maintenance of infrastructure, and meeting its environmental obligations. However, this lifeline comes at a cost, with the new debt deal set to push Thames Water’s gearing—a ratio of its debt to equity and a key measure of financial stability—to a staggering 85%. This figure eclipses the average for water companies in England and Wales by more than 15 percentage points, underscoring the precarious tightrope Thames must walk.
Ofwat has been clear that Thames Water needs to pursue all options to seek further equity to fund its turnaround for the benefit of customers and the environment. Today’s announcement is a positive step towards extending its liquidity runway and seeking a market-based solution to the company’s problems.
– An Ofwat spokesperson
As Thames Water navigates the treacherous waters of financial instability, the stakes could not be higher. The company’s ability to secure the £3 billion lifeline and chart a path to long-term stability will have far-reaching implications, not only for its 16 million customers but for the broader water industry in England and Wales. The coming months will be critical, as Thames Water’s fate hangs in the balance, and the specter of temporary nationalization looms large on the horizon.
In this high-stakes battle for survival, Thames Water finds itself at a crossroads, grappling with the urgent need for financial stability while striving to meet its obligations to customers, the environment, and its creditors. As the clock ticks down and the pressure mounts, all eyes are on Thames Water, watching to see if it can weather the storm and emerge from this crisis as a stronger, more resilient company, or if it will be swept away by the rising tide of debt and uncertainty.
