UK bidder in last-ditch tilt for Thames Water

The British bidder circling Thames Water has mounted a last-ditch attempt to gatecrash a controversial rescue by its lenders.

Castle Water, which already serves business customers in Thames Water’s catchment area, claims it has been shut out of the bid process – even though it has offered £20 billion to fix leaks and stem sewage spills over the next five years.

Thames Water, Britain’s biggest water firm with 16 million customers in London and the Thames Valley, is teetering on the brink after racking up huge debts and fines under its previous private equity owner.

The Government has hired FTI Consulting to draw up contingency plans for its potential collapse involving a temporary form of nationalisation.

Lenders to stricken Thames Water are preparing a fresh cash injection to save it from having to be rescued by the state.

The 11th-hour deal would also see creditors writing off some of their debts.

Thames Water, which is sinking under £18 billion of debt, had previously said it preferred a buyout by KKR over rival bidders because the US private equity firm’s rescue plan was more credible.

It has since pulled out citing political risks.

KKR had been chosen ahead of both Scottish-based Castle Water – which handles billing and metering for Thames Water’s business customers – and CKI, the Hong Kong owner of Northumbrian Water, whose bid was attacked by some critics as being ‘Chinese-backed’.

But Castle Water this weekend sought to revive its bid, claiming it had backing from ‘very stable long-term UK investors’ who are ready to pump £4 billion immediately into Thames Water to turn it around.

‘Our investment proposal and approach is compatible with Thames’ creditors, but their preference is to go it alone,’ chief executive John Reynolds told The Mail on Sunday.

Referring to the industry regulator, he added: ‘Castle Water is the right partner if Ofwat requires them to have a partner who can take responsibility for leading the turnaround.’

Castle Water is co-owned by Reynolds, a former investment banker, and Conservative Party treasurer Graham Edwards.

It bought the non-domestic arm of Thames Water in 2017 and is now the UK’s largest ‘retailer’ of water to hundreds of thousands of firms, charities and public bodies after the non-household sector was opened up to contractors to handle billing, metering and complaints.

Its tilt at Thames Water is backed the billionaire Pears family behind the William Pears Group – a finance and property firm that is providing funding for the bid.

Reynolds said he was ‘frustrated’ not to be given the same access to Thames Water as KKR.

‘We just need to be let inside the fence – and not just the data room – so we can assess the assets, the contracts and current plans so we can hit the ground running,’ he said.

‘We have a management team in place able to immediately step in to work alongside Thames Water to improve performance.

‘And we don’t have any competition issues because we don’t own another water supplier,’ he added, referring to CKI.

The creditors who own most of Thames Water’s debts are made up of more than 100 financial groups including US hedge funds Silver Point and Elliott.

They are expected to unveil a revised rescue package in the next fortnight. Sources say it will involve them taking a bigger ‘haircut’ – or write-off – on their debt than the £3.2 billion previously indicated.

A new management team led by corporate troubleshooter Mike McTighe is also expected to be announced.

Apart from Ofwat, any deal needs the blessing of credit ratings agencies.

They will decide if the funding package allows them to upgrade the utility’s debt from ‘junk’ status, meaning Thames Water would be able to borrow money more cheaply.

Thames Water received a boost last week when it was allowed to pay most of a record £123 million fine for sewage spills and shareholders payouts in instalments.

It is also increasing average household bills by almost a third to £639, but consumer groups argue people shouldn’t have to pay more because the company has been badly run.

Thames Water said it continued ‘to work closely with stakeholders’ to agree a rescue plan to avoid part-nationalisation.

The Government said Thames Water remained ‘financially stable’ but it was ‘ready for all eventualities, including applying for a special administration regime if that were to become necessary’.