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The board of Thames Water, Britain’s largest water company, was locked in crisis talks on Wednesday after shareholders refused to confirm they would provide about £3bn of fresh equity that is necessary for its survival.
Thames Water, which provides water and sewage services to about a quarter of the UK population, needs shareholders to indicate they will stand by plans to inject additional equity but had not received their backing at the board meeting that was running into Wednesday evening, two people briefed on the situation said.
One person close to the talks said the situation was fluid and a company announcement could be made on Thursday.
Thames Water is trying to avoid going into the government’s special administration regime but ministers have been on standby for the possibility of its collapse.
The company is the most leveraged in the sector and has come under increasing financial strain as higher interest rates have raised the cost of servicing £18.3bn of group debt.
Last year, Thames Water shareholders agreed to invest £750mn this year and more than £3bn by 2030 — but subject to certain conditions.
The company is lobbying industry regulator Ofwat to agree to sharp increases in water bills as well as concessions on regulatory fines and an agreement that it can continue to pay dividends.
Thames Water’s shareholders — which include pension funds Omers and USS as well as the Chinese and Abu Dhabi sovereign wealth funds — are dissatisfied with progress in the discussions with Ofwat, according to people familiar with the matter.
One person close to Thames Water described the talks as a game of brinkmanship with the regulator and the government.
“Equity is saying it won’t give any more money unless Ofwat blinks and Ofwat is refusing,” added this person.
“It’s a big ask for a shareholder to write a £500mn cheque with no chance of getting it back,” said an investor in another UK water company.
“They have Ofwat over a barrel. They are saying we will give you equity but only if you give us better returns.”
Ofwat launched an investigation last year into a £37.5mn dividend paid by Thames Water to its parent company Kemble.
Kemble, which has no other source of income other than bills paid by Thames Water customers, requires the dividends to service its debt. Kemble needs to refinance a £190mn loan that is due for repayment by the end of April.
A £400mn publicly traded Kemble bond that expires in May 2026 was trading at 26 cents on the dollar on Tuesday afternoon, indicating market nerves over the company’s future.
The government is keen to avoid a nationalisation of Thames Water in an election year and is optimistic that, even were Kemble to collapse, it can restructure the group debt or bring in new investors to recapitalise the regulated operating business, according to officials.
But some lawyers and investors have disputed that assertion, saying Thames Water’s troubles may be too entrenched to be fixed.
Thames Water and Kemble did not immediately respond to requests for comment.
Additional reporting by Robert Smith