Thames Water has suffered a major setback in its attempt to secure its future after US private equity giant KKR pulled out of plans to buy the company.
KKR had been selected as the preferred partner to inject £4bn of much-needed cash into the UK’s biggest water company.
The setback increases the possibility that the company will collapse into a government-supervised administration.
Thames Water called the news “disappointing” but said it would proceed to work on an alternative plan, which is considered the last chance to save the company from administration.
The company serves about a quarter of the UK’s population, mostly across London and parts of southern England, and employs 8,000 people.
Regardless of who owns Thames, its water services will continue as normal.
Thames Water is effectively owned by its lenders and a consortium of them has prepared a plan to raise equity which sources say is ready to go and fully funded.
KKR’s withdrawal comes on the same morning that an independent commission released interim findings of a review into how the water industry can be reformed – a review which many saw as potentially supportive in attracting new investment.
Sources close to the situation told the that the politicisation of the water industry was a major disincentive for investors to put money into the sector.
Thames Water chairman Sir Adrian Montague said that while KKR’s withdrawal was “disappointing, we continue to believe that a sustainable recapitalisation of the company is in the best interests of all stakeholders and continue to work with our creditors and stakeholders to achieve that goal”.
“The company will therefore progress discussions on the senior creditors’ plan with Ofwat and other stakeholders.”
The chair of the Environment, Food and Rural Affairs Select Committee, Alistair Carmichael, said that when it quizzed Thames Water bosses in May, it had raised “serious concerns that Thames had only pursued one bidder at an early stage for its takeover bid, against the wishes of Ofwat, and highlighted the risks this could pose if KKR chose not to proceed”.
“Unfortunately, our concerns have been realised, putting Thames in a perilous position.”
Thames Water serves about a quarter of the UK’s population, mostly across London and parts of southern England, and employs 8,000 people.
The government has previously said it is ready to take over Thames Water in the event that it cannot continue to operate, but earlier this year the company secured a £3bn rescue loan to give it time to restructure.
When Thames was privatised in 1989, it had no debt. But over the years it borrowed heavily and now has debts of about £19bn.
An independent review of the water industry, chaired by Sir Jon Cunliffe, has said the current regulatory system is “chaotic” and needs to change.
Sir Jon, a former deputy governor of the Bank of England, told the ‘s Today programme that various regulators had competing remits which has made the “system incoherent and expensive.”
He said long-term investors were needed in the sector.
“People like pensions funds and insurance companies who take decisions for the long-term health of those companies,” Sir Jon said.
