Thames Water, Britain's largest water supplier with 16 million customers, is once again facing an uncertain future. The US financial investor KKR has unexpectedly withdrawn its £4 billion rescue offer – just a few days after officially submitting it to the regulator Ofwat.
The cancellation follows intense but ultimately fruitless negotiations with government representatives over the weekend. According to negotiation circles, the decisive factor for the withdrawal is concerns about political influence, which could increase under the new Labour government. KKR initially committed to a holding period of at least ten years but increasingly doubted the feasibility of the commitment.
Thames Water is in debt by nearly £20 billion and struggling with a weak balance sheet. Already last year, former shareholders had to write off their investments completely. In its plight, the company resorted to an expensive £3 billion bridging loan, provided among others by Silver Point Capital and Elliott Management.
In March, KKR received the nod for a recapitalization model whose core was an equity injection in the billions. Meanwhile, Thames Water discussed an alternative rescue plan with bondholders. According to insider circles, they have already submitted concrete proposals including a management team to Ofwat.
The government confirmed on Tuesday that a renationalization under the "Special Administration Regime" was being prepared, but a market-based solution was still preferred. Environment Minister Steve Reed spoke of a stable company and a door that remains open to investors.
KKR itself did not want to comment on the reasons for the withdrawal. However, people close to the situation cited the increasing political rhetoric towards the industry, the record-high fines, and concerns about the complex stakeholder structure as decisive factors.
Just last week, Ofwat fined Thames Water £123 million – among other things for illegal sewage discharges and dividend payouts despite poor performance.
Thames Water Chair Sir Adrian Montague described the situation as "disappointing" but emphasized that work was ongoing on a viable solution with existing creditors. A way out could be the resumption of negotiations with other bidders, including CK Infrastructure from Hong Kong and Castle Water, which has already publicly signaled its willingness to finance.
At the same time, a commission on water management appointed by the government presented a critical interim report. Supervision by Ofwat has "largely lost the public's trust," it states. In the future, the authority should rely less on sector-wide modeling and intervene more individually and earlier with companies.
