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Thames Water directors are holding crucial discussions about the utility’s future

Thames Water’s board was locked in critical negotiations on Wednesday as shareholders prepared to water down a pledge to inject the company with funds that would ensure its survival.

Sky News has learned that directors of Britain’s largest water company have met after months of talks with debt and equity investors, lenders, regulators and government officials to discuss its financial future.

An industry source said this Thames waterThe company’s shareholders, which include the Universities Superannuation Scheme (USS) and China’s sovereign wealth fund, were poised to conclude they were unable to contribute hundreds of millions of pounds of promised funding after Ofwat, the regulator of the company industry, had indicated that it would not bow to the company’s demands for a package of regulatory concessions.

Discussions continued into Wednesday evening and it remained possible that the picture could change ahead of a company announcement on Thursday morning.

Thames Water shareholders had said they were prepared to invest £3.25bn in the company over the coming years, with the first £750m to be committed this year.

The likely decision by investors to weaken that commitment is not irreversible and could still be changed if the financial profile of a future investment improves, a source close to one of them said.

The company employs around 7,000 people and serves almost a quarter of the UK population.

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December: Thames Water fails to pay £190 million

However, the country is drowning in debt worth well over £15 billion, which requires huge interest payments to service.

Thames Water’s shareholders also include Canadian pension fund Omers, Infinity Investments, a subsidiary of the Abu Dhabi Investment Authority, and the BT Pension Scheme.

The utility demanded concessions including a 40% increase in consumers’ water bills, easing of investment requirements and leniency on upcoming regulatory penalties.

Should shareholders ultimately confirm their decision to withdraw the additional financial support announced last year, it is likely to leave the heavily indebted company with few viable options to secure its future.

Last summer, Sky News revealed that Whitehall officials had begun preparations Emergency plans for Thames Water collapse amid the fear that it might not survive.

However, in an investment plan unveiled in October, the company said its shareholders would “step up to support… much-needed investment, underlining their commitment to the regeneration of the Thames and the vital service it provides for the benefit of our customers, communities and… ” the environment”.

“Shareholders have already invested £500m of new funds in 2023,” it said at the time.

“In addition, they have agreed to provide a further £750m of new equity funding… subject to the satisfaction of certain conditions, including the preparation of a business plan that underpins a more targeted turnaround that delivers targeted performance improvements for customers, the environment and others.” stakeholders in the next three years and will be supported by appropriate regulatory regulations.

“Our shareholders have also recognized the need for additional capital investment in the region of £2.5 billion [the next regulatory period].

“In total, this would equate to a total equity investment of £3.7 billion, the largest equity support package ever proposed in the UK water sector.”

The £750 million mentioned in that announcement is now unlikely to be implemented without major regulatory changes, the company was expected to say on Thursday.

Should Thames Water eventually collapse, temporary nationalization would mean the company’s operations would be placed under a special administration regime (SAR), similar to that in place when energy supplier Bulb collapsed in 2021.

This would raise concerns within the government that triggering a SAR could ultimately cost the taxpayer billions of pounds.

Ultimately, the Bulb administration cost the public purse far less, but water industry ownership restrictions preventing consolidation mean that figure could be dwarfed if Thames Water fails.

Thames Water, which serves 15 million customers across London and southeast England, has come under severe pressure in recent years due to its poor record on leaks, sewage pollution, executive pay and shareholder dividends.

The company faces numerous fines and regulatory investigations, including over the payment of dividends to its parent company Kemble Water.

The company has been hit by management turmoil and Sarah Bentley, its chief executive for the past three years, resigned last summer.

She was replaced by Chris Weston, the former Aggreko boss.

The financial peril Thames Water finds itself in has led to calls from critics of the privatized industry for all major British water companies to be renationalised.

A number of companies have been forced to seek additional funding from their shareholders, with the state of the water industry likely to play an important role in the general election campaign.

Almost £1.4bn of the company’s bonds will mature by the end of this year as Ofwat’s price controls mean water companies have little scope to generate additional revenue.

Read more:
Thames Water’s lenders hire EY as debt deadline approaches
Thames Water bosses admit they will be unable to make April debt repayments
Water companies are facing backlash over record-breaking sewage spills in England

In total, tens of billions of pounds have been paid out to shareholders of water suppliers across the UK since privatisation, sparking public and political outrage given the frequent mismanagement of the sector.

Earlier this month, Sky News revealed that a group of lenders to Thames Water’s parent company had hired advisers weeks before a £190 million bond issue by Britain’s largest water utility was due to mature.

Thames Water and a spokesman for its shareholders declined to comment on Wednesday evening.

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