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The water regulator, Ofwat, stated on Tuesday that Thames Water requires billions of pounds in additional funding. However, investors are currently reluctant to invest further in the industry.
During a House of Lords committee hearing, Ofwat’s CEO, David Black, revealed that the largest privatised water utility in the UK has been unsuccessful in securing £1bn in the short term, despite a year-long effort. Black acknowledged the investors’ concerns about the company’s successful turnaround plan, emphasizing the need for confidence in the proposition.
Iain Coucher, the regulator’s chair, expressed a possibility that Thames Water might require even more funding, raising questions about the sufficiency of the remaining £1bn.
Thames Water, burdened with £16bn in debt, is currently exploring options to raise capital from shareholders. The government is also considering a temporary renationalisation contingency plan due to mounting public anger over sewage pollution in UK waters.
Following a £3.3mn fine imposed by Lewes Crown Court for polluting rivers near Gatwick airport in 2017, Thames Water faced a committee hearing at the Lords industry and regulators committee. The water company, along with other industry players, is preparing to raise debt and equity for the upcoming five-year regulatory period starting in 2025. Black emphasized the company’s need for strong finances during this period.
Despite raising £500mn in equity injection in March, Thames Water’s demand fell short of the initial £1.5bn target set last summer. Black refrained from specifying the exact amount required but indicated that it is substantial. He also admitted that existing shareholders might not contribute the necessary funds, potentially necessitating the involvement of new shareholders.
In an effort to reduce debt-to-equity levels, companies in the sector are striving to raise fresh equity. Ofwat views this as essential and has encountered resistance from investors and companies. These actions aim to bring about changes in the industry.
Thames Water’s CEO, Sarah Bentley, unexpectedly resigned last week, creating uncertainty. However, Black clarified that there isn’t an immediate crisis as the company still has £4.4bn in liquidity at its disposal. While other companies in the sector are also being scrutinized for their financial stability, Thames Water is particularly vulnerable due to its persistent poor performance and high levels of debt.
Black mentioned that other companies will also need to raise equity, pointing out that Yorkshire Water has recently raised £500mn. He anticipates more companies making similar announcements in the near future, as some investors may lack the appetite to invest further in water companies.
Coucher disclosed that Ofwat has expressed serious concerns to Thames Water about the progress of its transformation program, both in November and late March. The regulator has been closely monitoring the struggling company, highlighting the urgent need for an injection of equity.
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