Whilst the acute crisis seen at the heart of the private water sector has been temporarily resolved, business water customers are waiting for a more permanent resolution, one which would ideally not consequently lead to even further increases to water bills.
Following a £3bn injection of equity that allows Thames Water some room to begin restructuring its debts and finding a new buyer, concerns have been raised about some of the potential bidders, with Lord Sikka plainly stating that private equity would “inevitably multiply” the problems the stricken water company had.
One bidder in question, KKR, were perhaps most infamous for their leveraged buyout of RJR Nabisco, which became the subject of the influential book Barbarians at the Gate, and the concerns are that a similar approach might be applied to the water supplier for 16m people.
To understand what could happen next, it is important to understand what caused Thames to end up in this position and the role of the Macquarie Group in its plight.
A “Very Proud” Record
In recent years, Thames Water has become infamous for poor service, incidents of dumping raw sewage into waterways and several significant financial crises that have come close to existential, but the origins of these issues arguably began during their ownership by the Macquarie Group.
The Australian investment bank recently said that they were “actually proud” of their record according to an article by the Financial Times, and denied all responsibility for the position the company sees itself in now.
However, between the bank’s acquisition of Thames Water in 2006 from German company RWE until its sale in 2017, the company’s debt more than doubled from £4.4bn to £10.5bn, and whilst it has nearly doubled again since then, much of the later debt was to fulfil interest obligations.
This has created a subsequent debt spiral from a financial standpoint, which not only affected the balance sheet as Thames Water kept borrowing to keep up but as little of that funding went towards infrastructure, leaks, failures of service and pollution incidents all led to extra fines.
A Similar Story With Southern
Whilst Macquarie have made a spirited case in the defence of their record with Thames Water, it is undermined somewhat by a report released the same day by the Financial Times which reveals that their most recent operating losses as their highest since records began.
Southern, much like Thames, has seen its credit rating reduced to junk status by Moody’s, which would make borrowing more expensive and more difficult.
This has made a default more likely and has escalated claims that Macquarie and private equity firms that follow a similar approach are causing water prices to increase more than they otherwise would have whilst providing little financial stability or continuity of service.
Southern Water wants to increase prices more than any other water company, and with the second-largest debt bill next to Thames Water, could face a similar set of existential crises.
Could Either Be Nationalised?
Following the surprising measures taken to ensure British Steel continues operations under the direction of the UK government, the conversation has turned to nationalisation and whether other struggling utilities would be brought into public ownership again.
Technically, British Steel has not been nationalised, as the Jingye Group who bought British Steel retains ownership as of May 2025, but with no major offers to buy the company outright, it has been seen as the starting point to nationalisation.
This has led to questions regarding whether Thames, Southern or any other water company could end up in a similar situation.
Water companies were historically popular with investors because they provided a natural monopoly; whilst there is some degree of flexibility in switching providers, the company responsible for supplying water was relatively fixed and therefore there was a consistent revenue stream.
However, with major infrastructure improvements required and two of the biggest water companies shouldering billions of pounds worth of debt, the question has emerged of whether it has become a question of when, rather than if, a water company will end up in a similar position to British Steel.
The water industry has a dedicated process for handling failed companies called the Special Administration Regime (SAR), and a very similar process has already been seen in action in the electricity sector with the collapse of Bulb Energy.
The SAR of Bulb Energy ultimately cost the UK taxpayer nothing, as new owners Octopus Energy repaid the £3bn used to rescue Bulb in the wake of the 2021 Energy Crisis, according to The Guardian.
It will remain to be seen what happens next, but what is certain is that British water remains in a period of flux.
