UK ministers hold emergency talks over Thames Water

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The UK authorities is on standby for the potential collapse of Thames Water and ministers are analyzing choices together with the short-term nationalisation of the debt-laden enterprise.

Defra, the atmosphere ministry, is holding emergency talks with business regulator Ofwat to look at contingency plans in case the nation’s largest water firm is unable to lift non-public finance within the coming weeks, based on authorities officers.

The prospect of short-term nationalisation despatched the value of a 2026 bond offered by Kemble Water Holdings, Thames Water’s father or mother firm, plunging by as a lot as 35 pence to 50p, into distressed territory.

One possibility is putting Thames Water, the most important water firm within the UK, right into a particular administration regime (SAR), they mentioned. The SAR course of, which was launched in 2011 and would in impact imply public possession, was first utilized in 2021 for the short-term rescue of vitality provider Bulb; the corporate has since been offered on by the federal government to Octopus Power.

“Defra and Ofwat are planning for all eventualities,” mentioned one authorities official.

One other mentioned: “Theoretically, the corporate might find yourself in SAR however I would like to stress that that is very a lot a contingency plan reasonably than a most popular consequence.”

Thames Water is owned by a gaggle of personal fairness, pension and infrastructure funds and has £14bn of money owed. Its largest shareholder is Ontario Municipal Workers Retirement System, with a 31 per cent stake. Different buyers embrace UK pension fund Universities Superannuation Scheme in addition to the Chinese language and Abu Dhabi sovereign wealth funds and infrastructure fund Aquila GP.

On Wednesday, Thames Water mentioned that it’s working “constructively” with its shareholders over injecting extra fairness into the corporate to help its “turnaround and funding plans.”

The shareholders final yr invested £500mn within the firm — the primary fairness injection since privatisation — and pledged an additional £1bn topic to situations.

The contingency planning from the federal government and regulators come a day after Thames Water’s chief government Sarah Bentley resigned with fast impact after simply three years within the job. She was within the second yr of an eight-year turnround plan to sort out leakage and scale back sewage outflows into rivers, a legacy of under-investment in infrastructure.

However the firm, which primarily serves London and the south-east of England, was struggling to make progress and a freedom of data request launched this week revealed the leakage price from Thames Water pipes was the very best in 5 years.

A Defra official mentioned the ministry was “continuously” updating present laws “to ensure it’s match for objective”, including: “We do it as a matter in fact and you’ll criticise us if we didn’t, we have to plan for each eventuality.”

A authorities spokesperson mentioned: “It is a matter for the corporate and its shareholders. We put together for a spread of eventualities throughout our regulated industries — together with water — as any accountable authorities would.”

They added: “The sector as a complete is financially resilient. Ofwat continues to watch the monetary place of all the important thing water and wastewater firms.”

Ofwat didn’t instantly reply to a request for remark. Contingency talks have been first reported by Sky Information.

After being offered with nearly no debt at privatisation three many years in the past, UK water firms have taken on borrowings of £60.6bn, diverting revenue from buyer payments to pay curiosity funds.

The whole sector is now underneath strain from rising inflation, together with hovering vitality and chemical costs and better curiosity funds on its money owed. S&P, the ranking company, has unfavorable outlooks for two-thirds of the UK water firms it charges — indicating the potential of downgrades as the results of weaker monetary resilience. Greater than half of the sector’s debt on common is inflation-linked, placing strain on firms within the present atmosphere.

Ofwat mentioned in December that it was involved in regards to the monetary resilience of a number of water firms: Thames Water, Yorkshire Water, SES Water and Portsmouth Water. ​

In 2021 Southern Water, which serves 4.2mn prospects throughout Kent, Sussex and Hampshire, was rescued from the brink of chapter after Australian infrastructure investor Macquarie agreed to take management of the corporate in 2021 in a non-public take care of Ofwat.

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