Thames Water Pushes Deadline on £3.3 Billion Equity Raise

(Bloomberg) -- Thames Water extended the deadline in its search for billions of pounds in new equity, as it demands more from potential investors on how they plan to help turn around the beleaguered utility.

Investors originally had to submit indicative, non-binding bids on Nov. 28, but that has now been extended by a week to Dec. 5, according to two people familiar with the process, who asked not to be identified discussing confidential matters.

The utility last week demanded further details on how any investor plans to improve performance, one of the people said.

The UK’s largest water and sewage operator only has enough money to last until early next year and is desperately trying to find investors to inject at least £3.3 billion ($4.2 billion) in equity over the next five years to curb chronic leaks, sewage spills, tackle climate change and a growing population. 

A representative for Thames declined to comment. 

Thames, like all water companies in England and Wales, is also awaiting a crucial ruling from regulator Ofwat on Dec. 19 on its next five-year business plan. That decision will outline an allowed return on equity for investors and how much Thames will be able to claw back through customer bills. Until Thames has that determination, any potential investor won’t be able to confirm their final position.

“The outlook for additional equity for Thames continues to appear challenging as the company looks for over £3 billion” across the next five-year cycle, analysts at RBC Europe Ltd. said in a note on Tuesday.

Potential bidders include Castle Water Ltd., which bought Thames’ non-household water and sewerage retail business in 2016. Castle has a view to owning a majority stake in the business and is seeking to list Thames on the stock exchange, according to a person familiar with the matter.

Other potential bidders that have been widely reported include CK Infrastructure Holdings Ltd. and KKR & Co., who together own stakes in Northumbrian Water. Thames and its adviser, Rothschild & Co., have also approached Brookfield Asset Management and Carlyle Group Inc., according to other people familiar with the process.

With the equity process unlikely to be concluded this year, Thames is also trying to borrow as much as £3 billion more from existing creditors and restructure its debt load of around £16 billion. Without new equity and debt, it would likely be temporarily nationalized. 

On Monday, Thames confirmed it had avoided a battle with creditors over the release of about £400 million of cash which would otherwise have been reserved. The company said that would give it a cash runway until February. The issuing of a new super senior loan will require the blessing of a judge, with the first hearing date set for Dec. 17 at London’s High Court.

The wider restructuring process would likely see debtholders take equity in the company, in return for a reduction to the amount they are owed. Current equity investors in Thames have already written their holdings down to zero.

(Adds analyst comment in paragraph seven and date of first court hearing for restructuring in paragraph 11. A previous version of this story dated Nov. 18 was corrected to clarify period in second paragraph.)

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