Thames Water Gets £5 Billion Takeover Bid From Covalis

(Bloomberg) -- Infrastructure investor Covalis Capital has submitted a £5 billion ($6.4 billion) bid to take over struggling UK water company Thames Water, according to a person familiar with the matter, as the beleaguered utility races to raise new funding before it runs out of cash.  

To finance the proposal, Covalis would provide around £1 billion of funds up front before raising another £4 billion from asset sales, refinancing and the listing, the person said. It would also bring on board French water management company Suez as an operating partner.

The bid involves plans to review Thames Water’s business, which may involve selling its assets, before then listing the remainder on the stock market, the person added. The government would hold a “golden share,” granting it additional rights including a seat on the board. 

Suez wants to “assist Thames Water by leveraging Suez’s expertise in technical advisory and organizational optimization,” a spokesperson for the French firm said in an emailed statement. “At this stage, SUEZ scope of work is limited to advisory mission to ensure the project’s success and address the specific challenges faced by Thames Water.”

A spokesperson for Thames declined to comment. The bid was first reported by the Financial Times. 

Thames Water set a deadline of Thursday for indicative bids, with the utility needing to find at least £3.3 billion in new equity after its existing shareholders declared the business “uninvestible” earlier this year. Without new funding, it would likely be forced to apply for special administration — a form of temporary nationalization.

Castle Water Ltd, which bought Thames’ non-household water and sewerage business, has also proposed a bid, Bloomberg previously reported. As part of the deal, it would inject £4 billion of equity into Thames Water. 

Some potential bidders have already been deterred by the lack of clarity over returns and Thames’ ongoing debt restructuring, Bloomberg reported. CK Infrastructure Holdings, Carlyle Group Inc. and Brookfield Asset Management Ltd. all decided against placing a preliminary bid. 

Potential rescue deals have been complicated by the fact regulator Ofwat won’t set the level of allowed equity return for the next five years until Dec. 19. Even then, Thames may decide to appeal the final ruling to the Competition and Markets Authority, a process that could take up to a year.

Separately, the company is also awaiting a court hearing on Dec. 17 to approve as much as £3 billion in emergency debt funding as part of a restructuring plan that will allow it to continue operating into the new year. Even if that is approved, it still needs to undergo a more holistic restructuring next year, which may require some creditors to take haircuts.

(Updates with comment from Suez in fourth paragraph)

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