Thames Water has said it is seeking up to £3 billion in emergency loans in order to stay afloat until at least October next year.
The proposals would see the supplier borrow an initial £1.5 billion from its creditors, amid concerns the company could run out of cash early next year.
It will then seek another £1.5 billion depending on an upcoming decision by industry regulators.
Here the PA news agency explains why the water company needs more money and what it could mean for customers.
– What is Thames Water?
Thames Water is the UK’s largest water supplier.
The utilities giant supplies around 16 million households across London and the South East.
It was formed after the privatisation of water and sewage businesses in the UK in 1989 by the Conservative government.
– Who owns Thames Water?
Thames Water is owned by a group of investors, ranging from pensions funds to sovereign wealth funds.
The largest single owner is Canadian pension fund OMERS, which owns almost a third of the business.
The Universities Superannuation Scheme, a pension fund for UK academics, is the second-largest shareholder.
– What are the company’s finances like?
The company has come under greater scrutiny in recent years because of it heavy debt burden and the pressure of this on its operations.
Thames Water was left with around £10 billion in debt when it was sold by previous owner Macquarie in 2017.
It currently has around £15 billion in debt, which is expected to keep increasing thanks to high debt interest costs after a recent rise in borrowing costs.
The company swung back to a profit in its latest financial year but has been seeking longer-term funding in order to secure its finances.
– Why has the business proposed a new funding deal?
Thames Water has eaten significantly into its cash position over the past year as it pays off its significant debt interest and investment commitments.
On Friday, the company said it had only £500 million left, excluding another £500 million set aside for reserves and compensation payments.
In July, the company said it had £1.8 billion of liquidity, which would be enough to tide it over until May next year.
It has now said it would need the extra £1.5 billion in funding to keep it operating until next October, with further cash needed to help it in the long run.
The group is also looking at separate equity options and a potential restructuring of debt.
– What does this mean for customers?
The company has called for significant price increases for its customers to help bring in more revenues and help it fund its turnaround plan.
It most recently asked water regulator Ofwat to allow it to hike prices by 53% for the next five years.
Ofwat said earlier this year it would allow average prices across water firms to be lifted by 23% over the period.
There have since been reports that Ofwat could allow for a sharper rise in its final decision after pressure from water firms and their investors.
Ofwat is expected to confirm its final decision on how much companies can increase their bills by December this year.
Thames Water has said it will need to access more of its potential £3 billion of funding if Ofwat does not allow it to hike prices as much as it hopes, although it would therefore be likely to launch an appeal to the regulator.
– Is Thames Water heading for emergency nationalisation?
It has previously been reported that the Government has worked on a plan which could allow it to effectively nationalise the water giant.
However, earlier this week the Environment Secretary said nationalising water firms would cost up to £100 billion and “not resolve the problems” faced by customers.
Steve Reed ruled out bringing the companies back into public ownership as he outlined an independent review into the industry following a public outcry over bills, bonuses and sewage pollution.
The independent review into the water industry could consider abolishing regulator Ofwat among potential measures to reform the sector.
– What happens next for Thames?
Thames Water’s next key steps will both begin in December.
In December it is expected to receive a final decision from Ofwat over how much it can increase customer bills for the next five years.
This will affect how much money the company will bring in and, therefore, how financially viable its current turnaround plans will be.
In December, it will also start the court proceedings in order to complete the initial £1.5 billion part of its funding plan. It hopes to complete this by January next year.
The company has said it will continue to supply customers and run services as normal for the meantime.
