Thames Water Investors Pump in £750 Million of Crisis Funds

(Bloomberg) -- Investors in troubled UK utility Thames Water Ltd. have agreed to put in an extra £750 million ($960.4 million) of equity funding to help stave off a temporary takeover by the government with more money needed down the line.

The company will need a total of £2.5 billion in the five years to 2030 to help with the company’s turnaround plan, according to a statement. Thames Water will need to raise more debt to pay for infrastructure investments, keeping gearing under pressure.

The UK’s largest water utility, with 15 million customers in and around London, has been at the center of a crisis in the sector as rising interest rates cause payments on inflation-linked debt to surge. The industry is under scrutiny as companies have failed to invest enough in infrastructure to keep sewage out of the sea and rivers, and their debt pile has raised questions about the merits of privatization.

“The additional investment announced today is the largest equity support package ever seen in the UK water sector,” Chairman Ian Marchant said Monday in a statement. “Thames Water continues to maintain a strong liquidity position, including £4.4 billion of cash and committed funding,” it said.

The utility has held talks with government officials and regulators over contingency plans including a possible temporary nationalization. 

Net financing costs climbed by 24% in a year due to increased borrowing to fund investments and the impact of inflation, which drove up its index-linked debt. Statutory net debt has jumped to almost £14 billion, an increase of more than £1 billion year-on-year. Gearing fell to 77.4%, according to the company.

A £400 million junk-rated bond issued by Thames Water’s holding company jumped almost 8 pence on the pound to 68 pence on Monday but remained well below levels prevailing two weeks ago. A €650 million 2027-dated bond by the operating company rose 1 cent to 94 cents on the euro.

The results come almost two weeks after Chief Executive Officer Sarah Bentley abruptly quit. Two days later, city veteran Adrian Montague was appointed chairman. Lawmakers are also due to question present and former executives — along with representatives of the regulator Ofwat — over the firm’s financial resilience on July 12.

The company sustained £82 million in penalties from the regulator Ofwat due to poor performance, £50 million more compared to last year. Thames Water blamed “extreme weather and aging assets” for issues with their operational performance with pollution metrics incidents worsening compared to last year.

(Updates with penalties due in eighth paragraph)

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