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Thames Water said its attempts to negotiate a takeover deal with lenders were “taking longer than expected”, as the UK’s largest water utility reported a return to profit as a result of sharp increases in customer bills.
The struggling utility, which serves 16mn households in London and the south-east of England, has been trying to stave off temporary nationalisation for more than a year as it struggles to deal with almost £20bn of debt.
It is in the control of lenders including hedge fund Elliott Management and private capital group Apollo Global Management, which are trying to take formal ownership of the company. The creditors have proposed a new management plan, which could lead to a stock market listing as soon as 2030.
The deal requires agreement with regulators and the government. But on Wednesday, Thames Water said it was a “complex situation” that “will likely take a number of months to conclude”. If agreed, the deal would require ratification in the courts next year.
Thames Water said it would be renationalised under the government’s special administration regime — which could occur in the “very near term” — if the lenders are unable to agree terms with regulators. The company warned that there was still “significant doubt” about its ability to “continue as a going concern”.
The comments came as Thames Water reported a pre-tax profit of £414mn for the six months to September, from a loss of £149mn a year earlier. Revenues jumped 42 per cent to £1.9bn after water bills rose by an average of 31 per cent to £639 per household in April this year.
Thames Water is facing a rise in the number of complaints as well as an increase in customers struggling to pay. Despite this, the company said it could still appeal to the Competition and Markets Authority for higher bill increases by April 2030.
The company is being funded by an emergency £1.5bn loan from creditors, some of it at a 9.75 per cent interest rate. Thames Water said it had drawn £1.43bn of the facility as of September, and that this would be enough to keep the company running until February.
A further £1.5bn has been pledged by creditors to keep the company afloat until September next year if certain conditions are agreed.
The creditors’ plan to take control of Thames Water would see them write off 25 per cent of their debt and inject £3.15bn of new equity in exchange for leniency on fines and sewage targets. Although the increases in consumer bills have driven a 22 per cent rise in capital expenditure, Thames Water said it had fallen behind on infrastructure improvements that were due at the end of last year. This included delayed upgrades to more than 100 sewage treatment works.
Thames Water has faced criticism over fees paid to advisers, as well as retention bonuses to senior executives that came as part of the deal agreed with creditors. The company said it paid £57mn to bankers, lawyers and public relations consultants involved in the restructuring process in the six months to September.
Alistair Carmichael, chair of parliament’s environment, food and rural affairs select committee, wrote to Thames Water last week asking if it plans to press ahead with the second instalment of a £2.46mn payout to 21 of its most senior managers. The company is expected to make a decision next week.
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