Thames Water in urgent funding talks amid fears of collapse

  • By Michael Race
  • Business reporter, BBC News

Thames Water is in talks to secure extra funding as the government says it is ready to act in the worst-case scenario if the company collapses.

The water company, which serves a quarter of the UK population, is billions in debt and is under pressure with its boss resigning unexpectedly on Tuesday.

The government said “a lot of work is going on behind the scenes” and it had a process in place “if necessary”.

Regardless of what happens, the water supply will continue as normal.

Even if the firm were to collapse, it would not happen immediately, the BBC understands.

Britain’s biggest water company has come under heavy criticism over its performance following a series of sewage spills and leaks. Thames Water said it is trying to raise the money it needs to improve.

It said it was keeping water regulator Ofwat informed of progress and that it still had “strong” cash and loan reserves to draw on.

The firm leaks more water than any other water company in the UK, losing the equivalent of up to 250 Olympic-sized swimming pools every day from its pipes.

If the firm cannot secure further financing, it can be temporarily taken over by the state until a new buyer is found, in a special administration regime (SAR). This route was most recently taken with energy supplier Bulb after it ran into financial difficulties.

Asked about Thames Water in Parliament, Environment Minister Rebecca Pow said it was not her place to comment on the financial position of a company, but said water companies were “regarded as resilient”.

Former business secretary Kemi Badenoch said she was “very concerned” about the situation, adding “we need to make sure that Thames Water as an entity survives”.

In a memo to staff seen by the BBC, Thames Water chief executives Alastair Cochran and Cathryn Ross said Bentley’s departure and speculation about the firm’s future was “unfortunate and is worrying for many of us”.

The company has not given a reason for her departure. Earlier this year, Bentley blamed the company’s poor performance on sewage management on mistakes in the company before her time.

“Looking back, we have decades of under-investment that have led to cost-cutting and some bad decisions that have left the business in a really debilitating state,” she told the BBC in March.

Last year Thames Water’s owners – a consortium of institutional investors – pumped £500m into the business and pledged a further £1bn to help turn things around.

But it is understood the firm is struggling to raise the remaining cash it needs to service its significant debt pile, which is around £14 billion. Interest payments on more than half of the debt are linked to the inflation rate, which has risen over the past year.

Fear of debt

Since 2016, profits have not covered the cost of paying interest on debt, investment costs and dividend payments, according to Russ Mould, chief investment officer at AJ Bell.

Professor David Hall of the University of Greenwich said investors are reluctant to take on the risk of further investments because of fears they will not be repaid.

He said the £500m investment was the only time investors had put their own money into the company since it was privatized in 1989, having raised money for investment from customer bills.

Between 1991 and 2021, water companies had £50.6 billion in dividends.

For the past five years, Thames Water’s owners have supported the decision not to pay dividends to external shareholders. However, it has paid dividends internally.

If the government is forced to step in, Professor Hall said shareholders rather than the public are likely to lose money.

Other water companies face similar pressures due to higher interest payments on their debt and rising costs including higher energy and chemical prices. Ofwat said last year it was concerned about the financial resilience of Yorkshire Water, SES Water and Portsmouth Water as well as Thames Water.

Water bills have been on the rise, with the annual bill for the average household in England and Wales £448 in April.

Bills are set to rise again in 2025 by around £42 per household on average over a “long time frame”, former environment minister George Eustice said on Wednesday.

It came after the Times reported bills could rise by as much as 40%, a figure Eustice dismissed as saying it would be “far lower”.

Shadow energy secretary Ed Miliband said the situation at Thames Water was “an absolute scandal”. When asked if the company should be nationalised, he replied: “I don’t think the answer to the water company’s crisis is to pay out billions of pounds to shareholders, when that money could be used to sort out what is happening in the water industry”.

Separately, Chancellor Jeremy Hunt met with regulators, including Ofwat, early on Wednesday. He told them they had to “work at pace” to ensure businesses reflected any falling costs in the prices they charged customers.

Regulators from the energy, finance and communications sectors were also at the meeting to address questions about whether there is a profiteering problem and what they are doing to tackle it.

Source link

Back to top button