Yahoo Finance Thames Water parent tells creditors it has defaulted on debt
The parent company of troubled Thames Water has told its creditors it has defaulted on its debt, raising the prospect that the company could collapse or face a significant restructure.
Kemble Water has missed an interest payment that was due on Tuesday and said it was requesting its lenders and bondholders to take no creditor action so as to “provide a stable platform while all options are explored” with its stakeholders.
Britain’s biggest water company said last week its shareholders had refused to pay £500m promised to stabilise its finances, heightening concerns over its survival.
The price of the £400m Kemble bond, which is due to mature in 2026, has collapsed over the last year, indicating that debt holders believed the company could default. Consultants at Alvarez & Marsal are working with Kemble to assess its options and engage with lenders and bondholders over its future debt structure.
Kemble is the ultimate parent of the Thames Water operating company, which has 16 million customers. The water company’s executives have said that Thames and its customers are insulated and it would continue to operate as normal, should Kemble collapse.
Kemble’s creditors could allow the company to “amend and extend” a £190m loan due at the end of this month, buying time to allow a restructure. The lenders have so far refused to extend the loan and, if Kemble defaults, they could become shareholders in the company. It emerged on Thursday that Kemble’s lenders include ING, Allied Irish Banks and the Chinese state-owned Bank of China and Industrial and Commercial Bank of China.
The involvement of two Chinese state-owned banks could complicate the situation, as the UK government has pushed in recent years to limit Chinese ownership of critical national infrastructure. However, the China Investment Corporation is already a Thames shareholder.
A debt for equity swap with Kemble’s creditors could also be negotiated, but sources believe this option is looking increasingly less likely.
The government has assembled a team to study the situation, amid calls for debt-laden Thames to be renationalised. Rishi Sunak has so far resisted those calls and is understood to be keen for the company solve its financial problems without state intervention.
Thames has said the industry regulator, Ofwat, is being too tough, making the company “uninvestable” for investors. Shareholders have signalled they are willing to write off the entirety of their £5bn investment rather than pump in more funds if Ofwat does not give the company want it wants.
Thames wants to be allowed to secure significant bill increases, lower environmental fines and the ability to pay dividends up to Kemble to service its debts.
