Thames Water misses £1bn target with £750m injection

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Thames Water has fallen short of its target of raising £1 billion of immediate funding, instead securing a conditional agreement from its shareholders to inject £750 million of fresh equity.

The troubled UK utility said on Monday that its investors had agreed to provide £750mn by April 2025 if certain conditions were met.

These include a business plan “that outlines a more focused change” with targeted performance improvements and “appropriate regulatory regime” – an apparent reference to how much customer bills are allowed to increase by industry watchdog Ofwat.

News of the equity commitment helped a £400mn bond issued by the group’s holding company pare some of the recent losses, as it rose 7.5p to 66.5p.

“We have the unanimous support of our shareholders,” co-chief executive Catherine Ross said in an interview with the Financial Times. He emphasized that the company has liquidity of £4.4 billion. “We’re getting equity when we need it and we need less right now.”

But Thames Water, which provides water and sewage services to 15 million customers in and around London, also warned it would need an additional £2.5bn from investors by 2030.

Mentioning the conditions attached to Monday’s commitment by investors, Ross said the group’s shareholders wanted “a small number of key metrics that we can share with Ofwatt”. He described the metrics as a “work in progress”, and added: “We can’t do everything at once and we need to prioritise.”

The company is being closely monitored by the government, which is prepared for provisional nationalization in the event of its collapse.

It sought £1.5bn from investors last year alone, but had only received £500mn by March.

Ofwat chief executive David Black told a House of Lords committee hearing last week that Thames Water was struggling to secure the remaining £1 billion in the short term.

The group has come under pressure from rising interest rates, increasing financing costs on its £16 billion debt pile, as well as the need to increase infrastructure spending following public outcry over sewage overflows and leaks.

Net financing costs rose 24 percent in the 12 months to the end of March, while the company has also been hit by rising energy, chemical and labor prices.

According to the Environment Agency, the company received £35.7 million in fines for pollution between 2017 and 2023.

Fears about Thames Water’s finances flared up last month when chief executive Sarah Bentley abruptly quit after just two years into an eight-year restructuring plan. Ross, the former head of Ofwat, was subsequently appointed interim co-chief executive alongside Alastair Cochrane.

To pay for the planned investment in infrastructure, Thames Water is proposing to increase bills by 24 per cent – ​​or an average of £101.00 a year – for the next regulatory period, which runs from 2025 to 2030. Ofvat will receive final proposals in October and a decision will be taken by December 2024.

As of 2017, Thames Water was owned by the Australian investment firm Macquarie for just over a decade. During that time, the owners took in almost £3bn in dividends.

Its largest shareholder is now the Ontario Municipal Employees’ Retirement System with a 31 per cent stake. Other investors include the UK’s Universities Superannuation Scheme, Chinese and Abu Dhabi sovereign wealth funds and infrastructure fund Aquila GP.

Thames Water is not the only water company struggling with debt. The finances of four other companies – Southern Water, SES Water, Portsmouth Water and Yorkshire Water – are also under investigation by Ofwat.

Equity investment in water companies has been rare since privatization in 1989. But Yorkshire Water received £500mn from investors last month and Southern Water said on Friday it would seek £550mn from shareholders to shore up its finances. Fitch Ratings stated that this was a “trigger event” and that Southern would be barred from paying shareholder dividends under OFWAT’s rules.