UK believes Thames Water will avoid state takeover

The UK government believes Thames Water can avoid falling into public ownership, according to people familiar with the situation, as talks continue with investors to raise more than £1 billion (S$1.72 billion).

Ministers and officials have been considering contingency plans for the company, including a temporary state takeover, as rising interest rates swell its large debt burden and the need to improve infrastructure requires fresh investment. But the government now thinks Thames Water can raise the funds on its own, according to the people.

Thames is the UK’s largest water company, and its difficulties have raised concerns about the industry more broadly. The sector has become politically toxic as water companies have failed to invest enough to keep sewage out of the sea and rivers, and their large debt burdens have raised questions about the merits of privatisation.

The Treasury did not immediately respond to a request for comment.

The regulator Ofwat is also in the spotlight as bills have risen faster than inflation and crucial investments have been neglected even as companies paid out dividends.

Ofwat chief executive officer David Black said earlier this week that Thames was likely to need more than £1 billion as the company looks ahead to the next cycle of investments. It raised £500 million from shareholders in March. Talks with investors continue. 

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But Ofwat Chair Iain Coucher said the demands for greater infrastructure spending in the sector have changed the “investment profile.” Current investors include the China Investment Corporation and Ontario Municipal Employees Retirement System.

Ofwat’s Black reiterated on Tuesday that the company had more than £4 billion in liquidity and said the concerns had been “overstated.” 

Placing Thames in the special administration regime, a government system for temporary public ownership, was “not something that would be done lightly,” Black said on Tuesday. He said the threat of the SAR was nonetheless “increasing pressure on debt and equity holders to meet their obligations.” 

Thames’ chief executive officer, Sarah Bentley, quit the role abruptly last week and has been partly replaced, on an interim basis, by Cathryn Ross – its regulatory affairs director who was previously the head of Ofwat. Thames Water also hired city veteran Adrian Montague as its new chair, last week.

The company’s bonds plummeted following news of talks with government officials and regulators, but gained ground on Monday. BLOOMBERG