One of the world’s largest investment firms, KKR, has recently entered into discussions with Thames Water and its advisors regarding a potential £3bn share sale as part of a broader recapitalization strategy. This move comes as Thames Water faces significant financial challenges and is in urgent need of funding to address its mounting debt, which currently stands at approximately £19bn.
In addition to KKR, other investors like Carlyle and Castle Water, which is led by Graham Edwards, the Conservative Party treasurer, have also shown interest in acquiring newly issued shares in Thames Water. Moreover, Global Infrastructure Partners, which is backed by BlackRock, Brookfield, and Isquared, have expressed interest in the company as well.
The situation at Thames Water is putting pressure on Sir Keir Starmer’s administration as the company strives to prevent temporary nationalization amidst its financial woes. In response to these challenges, Thames Water is seeking to raise funds through both equity and debt financing.
Despite the interest from KKR and other investors, obstacles remain, such as regulatory approvals and the need for leniency from Ofwat, the industry regulator. Ofwat is expected to make a final decision on the matter by January, and Thames Water is hoping for favorable conditions to increase bills and avoid hefty fines for past violations.
For KKR, acquiring a significant stake in Thames Water may prove challenging due to its existing 25% holding in Northumbrian Water. Under the mergers regime, the Competition and Markets Authority would need to review the deal, adding another layer of complexity to the process.
Meanwhile, Thames Water is facing a showdown between its class A and class B bondholders, each proposing different rescue plans for the company. The class A bondholders, including Elliott Advisers and Silverpoint, are advocating for a more certain approach, while the class B bondholders argue that their plan could save the company substantial sums in fees and interest.
As the equity sale and debt financing processes unfold, Thames Water’s management, led by CEO Chris Weston, is under pressure to navigate these intricate financial negotiations. Moreover, the government has initiated an independent review of the industry to explore potential reforms that could address systemic issues in the water sector.
Despite these challenges, the involvement of major investors like KKR underscores the importance of securing a sustainable financial future for Thames Water and ensuring the continuity of essential water services for millions of customers. The outcome of these discussions will have far-reaching implications for the company, its investors, and the regulatory landscape of the water industry.
