Thames Water, the company responsible for supplying clean water and removing waste for a quarter of the UK, is facing financial difficulties due to its significant debt. The parent company of Thames Water, Kemble, is owned by some of the largest pension and sovereign wealth funds globally. This week, Kemble defaulted on interest payments on a £400m loan and informed lenders that it could not repay a loan of £190m at the end of the month. This default theoretically means that Kemble is insolvent, which is a problem for Thames Water since Kemble was supposed to invest more than £3bn in the company.
Thames Water’s new CEO, Chris Weston, attempted to alleviate concerns expressed about the company’s financial state by stating that Thames has enough money to operate until next May. However, eventually, Thames will require a new cash injection. Last week, Kemble’s shareholders halted a £500m payment towards that promised cash injection when regulator Ofwat rejected plans to increase customer bills above inflation by 40% over the next five years.
Thames’s serious financial situation implies that its parent company’s shareholders have not received any payouts since 2017. The shareholders’ attitude concerning the company is that they will not be prepared to inject additional capital into a company that is losing money, and they appear to have accepted that their shares are now worthless. Thames Water itself is entirely owned by Kemble and is ring-fenced, regulated, and £14.7bn in debt.
The Treasury, the Department for Environment, Food and Rural Affairs and Ofwat are working on a contingency plan in case Thames Water must be placed into a Special Administration Regime, which would result in financial consultants running the company on the government’s behalf. However, this would not be a popular decision during an election year and could lead to customer bills rising or taxpayers paying billions of pounds to cover the debt shortfall, which would be a tough sell to voters outside of southeast England
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