Thames Water creditor backs plan to break up business

Thames

A leading bondholder in Thames Water has backed plans to break up the business as it races to stave off collapse.

The prospect of carving up Thames Water is gaining momentum ahead of a rescue plan that bosses are expected to unveil on Friday.

Luke Hickmore, a fund manager at Abrdn who holds secured bonds in Thames Water, said he would support a split if it meant protecting creditors’ interests.

The Telegraph revealed earlier this month that bosses were exploring a potential break-up as part of a range of scenarios to avoid nationalisation.

Under the proposals being considered, Thames Water – which serves 16 million customers – could be divided into two separate smaller companies: one covering London and the other serving the Thames Valley and Home Counties regions.

Given its size, Mr Hickmore said Thames Water must reach a positive outcome for both “political and economic reasons”, as the risk of creditors losing out would knock confidence levels across Britain’s infrastructure sector overall.

He said: “They are one of the largest issuers in the UK. That’s a pretty important outcome for everybody, whether it be pensioners or insurance companies.”

It emerged on Tuesday that Thames bosses are also reportedly weighing a possible debt raise as it hunts for new cash to secure its future.

However, City sources played down the prospect, questioning why the beleaguered supplier would tap debt markets given it is already burdened by an £18bn debt pile.

One bondholder who recently sold out of Thames said: “It’s smoking something, right? The management team is panicking and thinking about how they can make it work and they can’t.”

A restructuring adviser involved in discussions added: “I find it mesmerising that any more debt could go in. No one would allow it. It seems crazy to my mind.”

Speculation around Thames’ finances comes weeks after parent business Kemble, which represents shareholders, confirmed it is cutting off fresh funds from the business over claims regulator Ofwat has rendered the business “uninvestable”.

It is understood there has been no dialogue between Thames Water bosses and Kemble since the announcement.

Shareholders’ refusal to fulfil a £500m funding package has pushed Thames Water closer to the brink, despite bosses’ claims that the company has £2.4bn of funds to see it through the next 15 months.

A collapse into special administration – where the Government steps in to keep the company operating – has grown increasingly likely in recent weeks, with the supplier yet to convince Ofwat that it must increase bills by 40pc in order to ensure long-term profitability.

According to sources close to the company, a taxpayer bailout could cost £5bn “just to keep the lights on”.

A Thames bondholder said: “We’re all running scenarios every morning and worrying about whether they are going to go through a special administration regime.”

It is understood that breaking up the business would make it easier for Thames’ operations to be sold on to a rival once stabilised.

Colm Gibson, managing director at Berkeley Research Group, said: “It is far from certain that Thames Water would emerge from special administration as a single large company. It is entirely possible that it could be broken up into a series of smaller water companies serving local areas.”

The Government is reluctant to intervene in the handling of Thames Water given the looming election, which could make it a problem for Sir Keir Starmer if Labour succeeds at the polls later this year.

This has already led to talk across the industry that Labour is in favour of a break-up, although the party rejected the speculation Wednesday.

Last week, Chancellor Jeremy Hunt said it would be “utterly outrageous” for Ofwat to grant Thames Water’s demands for higher household bills.

He said shareholders in the company “had an obligation to sort out the mess” when asked whether they had a duty to inject more cash into the business.

Thames Water declined to comment.