Thames Water, the crisis-hit utility company, is facing increased scrutiny as the industry regulator, Ofwat, appoints LEK Consulting as an independent monitor of the company. The move comes after Thames Water lost two investment grade credit ratings in August, putting its operating license at risk. Sky News has learned that Ofwat is expected to announce LEK’s appointment soon.
Last week, lenders holding £12bn of Thames Water’s debt met with Ofwat to propose a rescue deal in an effort to avoid nationalization. The proposed deal includes a debt-for-equity swap and fresh equity injection to restructure the company. Thames Water serves approximately 15 million customers in London and the south-east, making it a critical utility provider.
A deal needs to be reached by mid-November as Ofwat is set to approve the company’s business plan at a board meeting later in the month. Creditors are urging Ofwat to show flexibility in considering Thames Water’s plan to make the company attractive to investors. The creditor group’s proposals include potential adjustments to customer bill increases, among other measures.
Thames Water is also facing regulatory fines for its poor performance in customer service and sewage and water leak management. Plans for an emergency liquidity facility exceeding £1bn are being developed to provide financial support to the company. The involvement of an independent Monitor in Thames Water’s operations is aimed at driving meaningful changes in performance and ensuring expertise is added to the board.
Despite efforts by bankers to attract new investments in Thames Water, uncertainty looms over the company’s future. Ofwat’s rejection of the company’s spending plans for the next regulatory period has added to the challenges. Without new investments, temporary nationalization through a Special Administration Regime (SAR) may be inevitable.
Thames Water has scheduled court dates in November to advance a potential rescue deal, as shareholders have already written off their investments. The company’s survival hinges on securing investments and implementing a successful restructuring plan. Ofwat and Thames Water have refrained from commenting on the ongoing developments.
The appointment of LEK Consulting as an independent monitor underscores the urgency of the situation facing Thames Water. With stakeholders working to avoid nationalization and secure the company’s future, the coming weeks will be critical in determining the utility provider’s fate. Stay tuned for further updates on this developing story.