Thames Water is preparing to tap debt markets within weeks in an attempt to fund a rescue plan and repair its threadbare finances, the Guardian can reveal.
It is understood the embattled water company is planning to publish a revised five-year spending plan within days, before a deadline next month. Its board is expected to meet on Thursday to rubber-stamp the plan, and executives hope to release it on Friday.
Sources said the company then intends to wait for up to a week before approaching lenders to fund the proposals and has sought advice from City bankers and lawyers on the debt issuance. Financiers said the proposed timing of the fresh borrowing was surprising, given huge uncertainty around Thames’s future.
Britain’s biggest and most heavily indebted water company is fighting to secure its financial future, and has already said it only has cash reserves to fund its operations for the next 15 months without a substantial increase in bills.
Thames’s plans to raise fresh debt come despite it labouring under a £15.6bn debt pile. Its parent company, Kemble Water Finance, missed an interest payment earlier this month, and said it will not be able to repay a £190m loan due by the end of April.
Its shareholders also recently backtracked on plans to inject £500m into the business amid a standoff with the industry regulator, Ofwat. The investors, which include USS and Omers, said Thames’s original business plan was “uninvestible” (sic) and demanded Ofwat allow it to raise bills sharply, levy lower fines and pay dividends.
The company plans to republish the spending plan covering 2025 to 2030, which was first submitted to Ofwat last October, to allow regulators and investors to scrutinise it. Thames then intends to give markets a few days to settle and “absorb” the information before pushing the button on the debt plan, sources said.
Thames’s original plan was to raise bills by 40% to fund an £18.7bn investment programme. However, the size of its investment plan is expected to be revised upwards by between £1bn and £1.5bn, with the £1.5bn more likely.
It is unclear how much of the extra funds Thames hopes to raise through issuing new debt, but sources said it would have to be sizeable given the scale of its funding needs.
Sources said that Thames, which has 16 million customers across London and the Thames valley, hopes to price the bonds in late April, before issuing the debt formally in early May.
Lenders signing up to the debt issuance could be taking a gamble, however, as it is unclear how much Ofwat will allow Thames to raise through higher consumer bills.
Ofwat is due to publish its draft response to Thames’s plan on 12 June, with water companies’ plans not signed off until December. The Guardian revealed this week that the company had six weeks to convince the regulator that it had a credible survival plan for its business,before an Ofwat board meeting on 23 May.
Ofwat is understood to be sceptical that Thames’s current business plan is viable or fair on consumers and is demanding a separate turnaround strategy for reforms to its management and governance.
The company could be hamstrung by the relatively small pool of debt and equity investors in the UK water sector, and the high-profile concerns expressed over Thames’ future. Bonds in its parent company are trading at a steep discount after its default.
Other possible scenarios include renationalising the company, an attempt to find new shareholders – potentially through a stock market float – a debt-for-equity swap and a breakup of the company.
Although Thames’s operating company has £15.6bn of debt, the wider group has borrowings of more than £18bn across in its byzantine corporate structure.
Thames’s financial troubles have drawn further attention to the stewardship of the company by Macquarie, the Australian bank that previously owned the water supplier and which has been heavily criticised for building huge debts at Thames while paying dividends to shareholders.
The company’s current backers include the Canadian pensions firm Omers; the UK university staff pension scheme; a subsidiary of the Abu Dhabi sovereign wealth fund and China’s sovereign wealth fund.
Thames Water declined to comment.
