It’s not Thames Water anymore and it hasn’t been that for quite some time; it’s Thames Wat-er-mess.
The tragedy of this now-zombie company – which has warned that it will run out of cash sometime next year – is that things like leaks, customer service and the untreated sewage that keeps getting pumped into the environment aren’t anywhere near the front of the queue when it comes to the ongoing discussions about its future. It’s the financiers’ interests that come first.
However, despite enough debt to fill several reservoirs, it might surprise you to learn that there is plenty of interest in taking on this sinking ship, which is now firmly in the class of what they like to call a “distressed asset”.
The dismal state of the business has led to what the GMB union described (aptly in my view) as a “vulture auction”, alongside some strongly worded criticism of the reported plans of one of the bidders. Infrastructure investor Covalis Capital would draft in Suez, a French company that runs water assets there and employs 5,000 people in this country managing water and waste for local authorities and businesses, as an operating partner to run the thing.
Covalis would provide £1bn up front and realise £4bn more from disposals. The aim for the rump business would ultimately be a listing on the London Stock Exchange.
It isn’t hard to see where the problem with this lies – it partly explains the GMB’s fierce criticism. The most saleable parts of Thames Water’s portfolio will be the best parts of Thames Water’s portfolio. What would remain in the rump might not be up to much at all. Would investors have any interest in supporting the proposed flotation when it comes to that part of the plan? I wouldn’t be signing up for the shares. Would you?
The UK government is slated to get a “golden” share and a seat on the board – which it might not want but which would at least give it a veto on future deals not in the interest of the group’s 16 million customers, who reside in London and the Thames Valley.
There is also said to be interest from Hong Kong-based CK Infrastructure Holdings – the owner of Northumbrian Water – and Castle Water, co-owned by Tory party treasurer Graham Edwards, with as many as three other potential buyers who may submit formal bids by the January deadline.
However, there are a lot of boxes to tick before we get to that point. Thames Water, which has previously warned that its ageing assets pose “a risk to public safety, water supply and the environment”, needs £3bn just to keep the show on the road. It looks set to get that lifeline (there are a couple of offers on the table involving some of the group’s existing lenders) because it is not in anyone’s interest to see this soggy house of cards getting swamped. Least of all the holders of its debt.
However, given the state of the business, the interest Thames Water will have to pay on this emergency financing makes it look like the corporate equivalent of a payday loan. Lenders are ultimately going to have to take a painful haircut. The number of bids – and their attractiveness – will partly depend on the size of it.
The other determinant is how much Thames Water will be allowed to hike our bills. The company says the increase needs to be more than 50 per cent by 2030, which is brutal when you consider the inflation we have all endured, the fact that energy bills remain vastly elevated and the impact of sharply higher interest rates on homeowners and renters.
The problem with all these bids is that the key question for all of those using Thames Water services – and remember we have no choice but to because the water companies were privatised as regional monopolies – is whether any of them are capable of improving services for us at a sensible cost.
I doubt this is at the front of the minds of the bidders. It should be. But I doubt that it is.
What a state the water industry is in across Britain as a whole. High levels of debt, questionable ownership, sewage being released into rivers and seas, those demands that consumers pay more, more, more being heard wherever they live.
It needs cleaning up. But who is willing to don their wellies to do that? Ofwat, the existing regulator? Don’t make me laugh …