Thames Water risks falling behind on crucial equity raise, potential investors warn

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Troubled UK utility Thames Water has not yet provided crucial financial details, according to several potential investors in a multimillion pound equity raise, limiting their ability to submit offers by a key deadline. 

Thames Water, which provides water and sewage services to around 16mn households in England, risks having to declare a default to keep it from running out of cash around Christmas. Its existing investors, which include the Abu Dhabi and Chinese sovereign wealth funds, UK pension fund USS and Canadian pension fund Omers, have refused to inject any more equity.

The company has previously said it needs at least £750mn by early next year and more than £3bn by 2030 to keep operating and to upgrade creaking infrastructure.

Rothschild is currently running an equity-raising process for the company. An initial sales pitch, which has been seen by the Financial Times, was sent to potential investors in July.

That document says they should submit proposals by “late October” after the “launch of the formal equity solicitation process . . . expected to commence post summer”.

According to the potential investors, more detailed information that would allow them to look at Thames Water’s books and complete crucial due diligence before submitting non-bindings offers has not yet been received.

Rothschild declined to comment but a person with knowledge of their position said that “progress was as planned”. Thames Water declined to comment.

The company, England’s largest privatised water utility, is struggling with a £19bn debt load and trying to fend off renationalisation.

An additional challenge is that while its banks have agreed to roll over £410mn of debt due for repayment on Monday, more debt needs to be extended by the end of the year.

The 16-page pitch sent by Rothschild to global investors in July flags the “UK’s mature transparent regulatory framework” and argues shareholders would benefit from “cash flow stability and inflation linked hedges”.

It also points to the benefits of serving the “fastest growing and wealthiest population in the UK”, and cites the “critical nature of its services and natural monopoly position”.

One potential investor who received the initial document said: “They need to open the books up and give complete transparency” adding that the document “appears to ignore reality; it fails to mention any chance of bankruptcy, or even just the financial distress”.

Another said the document “tells you nothing”. “No one can invest on that basis,” they added.

Thames Water’s 90 creditors are working on a separate restructuring plan to try to keep the company out of the government’s special administration regime. The creditor group has access to the company’s books and is in discussions with regulator Ofwat about making Thames Water more appealing to investors.

The group is in discussion with potential equity investors who want to negotiate directly, according to people close to the creditors.

Any equity injection or restructuring would also be shaped by Ofwat’s ruling on how much water companies will be allowed to increase bills and what they must spend on infrastructure in the next five years. This is expected in December.