Yahoo Finance Thames Water shareholders demand 40pc bill rise after cutting off funding
The owners of Thames Water have refused to provide a £500m cash injection to prevent its collapse as they renew demands for household bills to increase by 40pc.
A consortium of pension funds and foreign states on Thursday announced they would stop funding the company and accused Ofwat, the regulator, of rendering it “uninvestable”.
They previously committed to providing £500m to the company before the end of this month, as part of an overall £3.75bn funding package through to 2030.
But their move stoked fears that Thames, which supplies a quarter of UK homes, may now have to be renationalised at a potential £5bn cost to taxpayers.
Jeremy Hunt, the Chancellor, said the Treasury was monitoring the situation closely but insisted the company was “still solvent”, while Thames executives stressed there was no threat to water supplies.
The crisis has erupted as Ofwat is considering the company’s business plan for 2025 to 2030, including a controversial proposal to raise bills by an average of almost £200 per household.
Thames says the increase is essential to cover its operational costs, pay for infrastructure upgrades to reduce storm overflows and generate sufficient returns for its investors.
The company, which has an £18bn debt mountain and is one of the country’s most complained-about suppliers, is also demanding the freedom to pay investor dividends again and wants Ofwat to reduce the fines it pays for sewage spills.
But on Thursday it emerged talks with the regulator had broken down, with Thames and its investors saying Ofwat was pushing back against its demand for higher bills.
The regulator is understood to be “sticking to its guns” and has told the company that consumers should not foot the bill for the company’s “financial engineering”.
It leaves the company and the watchdog locked in a standoff, with Ofwat expected to issue a draft decision on Thames’s plans at the end of May.
Without further funding from investors, bosses said Thames Water’s operating company had enough cash or borrowing facilities to survive until around May 2025 but would need to raise further debt or equity to avoid collapse.
That looked like a dim prospect on Thursday, however, as a bond linked to an entity in Thames’ complex structure nearly halved in value to just 16p in the pound.
The IOUs, which mature in 2026, were worth as much as 87p six months earlier.
Gordon Shannon, a bond fund manager for TwentyFour Asset Management, said the plunge suggested a “huge amount of doubt” that Thames would be able to honour its debts.
However, Chris Weston, Thames Water’s chief executive, claimed it remained “business as usual” and rejected suggestions the company was on the verge of failing.
He said: “There’s still a lot of water to go under the bridge.”
He would not reveal what the specific disagreements were with Ofwat but suggested that the regulator’s requirements would yield returns “considerably lower” than what investors were willing to accept.
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The row is thought to centre on a refusal by the regulator to countenance a 40pc rise in bills proposed by Thames. That would see the amount paid per household rise from an average of £436 per year to £609.
If the company fails, the Government has said it would be placed into “special administration”, a process that was used when the energy supplier Bulb collapsed in 2021.
Ministers have said they will not interfere in the talks, pointing out that Ofwat is independent.
But a source close to Steve Barclay, the Environment Secretary, added: “We certainly don’t think customers would think it is acceptable for there to be an easing of the regulatory regime because of this company’s demands.”
Thames Water’s nine investors include the Universities Superannuation Scheme, the Canadian teachers’ pension fund Omers, infrastructure investor Hermes and sovereign wealth funds linked to China and Abu Dhabi, among others.
On Thursday, in a joint statement, they all said: “After more than a year of negotiations with the regulator, Ofwat has not been prepared to provide the necessary regulatory support for a business plan which ultimately addresses the issues that Thames Water faces.
“As a result, shareholders are not in a position to provide further funding to Thames Water.
“Shareholders will work constructively with Thames Water, Ofwat and Government on how to address the consequences of Ofwat’s decision.”
Thames Water uses a complex financial structure that includes debt obligations to Kemble Water, its parent company.
However, in a call with journalists, Mr Weston insisted that if Kemble Water collapsed it would have no financial impact on the Thames Water operating company because the latter is “ring fenced” by regulation.
A spokesman for Ofwat said: “Today’s update from Thames Water means the company must now pursue all options to seek further equity for the business to turn around the performance of the company for customers.”
