Tuesday, April 23, 2024
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London’s water supplier set to collapse into ‘special administration’ as shareholders refuse to bail out Thames Water

Thames Water Utilities Ltd.’s shareholders refused to provide the first £500 million ($631 million) it needs for a turnaround plan to tackle chronic leaks and sewage spills.

The decision announced Thursday leaves a yawning hole in the finances of Europe’s largest water and sewage company, which could prompt the UK government to start special administration proceedings.

Shareholders at parent company Kemble Water Holdings Ltd. last year promised to pump £750 million into Thames by March 2025, pending regulatory approval of its £18.7 billion plan, which stretches out to 2030.

The signs of stress are starting to show already. Kemble said it will now be unable to pay to refinance or repay a £190 million loan which matures on 30 April unless an extension to the maturity of the facility is granted by lenders.

Thames is the worst performer among England and Wales’s water and sewage companies and desperately needs the cash to meet government targets on leaks, pollution and customer service. It has proposed to raise customer bills by 40% starting 2025 and is seeking £2.5 billion in equity over the five years from 2025.

The government is preparing for a range of scenarios, according to a spokesperson.

“If at the end of the day, probably well into the end of next year, we were in a situation where we had no equity, then there is the prospect of special administration but we are a long way from that point at the moment,” Chris Weston, Thames Water chief executive officer said on BBC radio.

Thames says that the regulatory requirements needed by Ofwat will make its spending plan “uninvestible”, according to a statement.

Ofwat has been investigating whether Thames broke regulations by paying millions of pounds to investors last year. Water utilities with a poor financial and environmental record aren’t allowed to pay dividends, but those payments are Kemble’s only source of finance.

“Safeguards are in place to ensure that services to customers are protected,” an Ofwat spokesperson said. “Today’s update from Thames Water means the company must now pursue all options to seek further equity for the business.”

Thames Water Kemble bonds this month dropped below 30 pence on the pound, well into distressed territory, according to prices compiled by Bloomberg.

The government has been drawing up plans to potentially bring Thames into special administration, streamlining its insolvency rules for the industry. Debt holders are concerned that they’d be left with losses if the troubled company goes bankrupt.

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