Thames Water faces more than £1bn worth of debt repayments next year

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Thames Water is facing more than £1bn in debt repayments next year just as MPs heighten their scrutiny of the utility’s financial health.

About £1.17bn worth of loans, private placement and bonds are expiring in 2024, of which £1.03bn were still owed by the regulated utility and its parent company at the end of March, according to financial accounts filed in November by Kemble Water Holdings, Thames Water’s parent company.

Of that amount, a £190mn facility is owed by Kemble Water and maturing in April 2024, while the rest sits in the regulated company, Thames Water Utility.

Thames Water executives have been summoned by MPs on Tuesday to explain why they structured a shareholder cash injection they portrayed as “equity” as a £515mn convertible loan charging 8 per cent, as reported by the Financial Times. Representatives of Ofwat, the regulator, will also appear before the parliamentary committee.

Thames Water’s capital structure has been a growing source of concern in recent months. About £15.7bn of debt sits within the regulated part of its byzantine corporate structure.

But the UK’s largest water utility, which provides water and sewerage services to about a quarter of residents in England, has another £2.6bn of debt in its parent company and other unregulated subsidiaries, taking the total to £18.3bn on a consolidated basis as of March 31, the accounts show. This is up from a total amount of £15.4bn the year before.

The group had cash of £1.94bn as of March, up from £708mn the previous year, the accounts show.

Thames Water declined to comment on its debt repayments for 2024.

In March, PwC, the company’s auditor, issued a “going concern” warning on Kemble’s accounts, after noting there were no firm arrangements in place to refinance the £190mn loan facility expiring in April next year.

Any refinancing is likely to be at a higher interest rate because interest rates are now higher than when the loans were negotiated. This could force Thames Water to pay bigger dividends to service the debt and ultimately pass on price increases to customers.

Thames Water has said it will need a further £2.5bn in new funding by 2030, in addition to £750mn in equity already pledged by shareholders, subject to price increases Ofwat needs to approve. Shareholders include pension funds Omers and USS, and the Abu Dhabi and Chinese sovereign wealth funds. 

Thames Water has argued that while the £515mn cash injection from shareholders is recorded in Kemble’s accounts as a loan, it trickled down to the “ringfenced” regulated entity as equity. “There is no obligation to repay this money”, it said, adding it was therefore “entirely correct and accurate to describe this as £500mn of new equity”, it added. 

However, Nick Hood, a corporate restructuring adviser at Opus Business Advisory Group, said that if the shareholders’ “loan was equity, it could reasonably have been expected to be described as such in Kemble’s accounts”.

“The only means of repaying the Kemble shareholder loan is by selling the shares in Thames Water Utility Ltd or putting it into special administration if Thames Water Utility Ltd can’t or isn’t allowed by the regulator to pay dividends,” he said.

By structuring it as a loan rather than equity, the shareholders were more likely to have protection in the event of any insolvency, said Hood.

Additional reporting by Robert Smith

Via

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