The last year has been a particularly strange and uncertain time for the private water sector, with implications for business water bills, services and usage audits.
At the centre of this was Thames Water, England’s largest private water company, and an approved £3bn loan as reported by the Financial Times approved by the High Court that was to act as the first step to help the company restructure £19bn worth of debt the company has accrued.
This was meant to be, if not the end of the story of Thames Water’s struggles, at least the end of a chapter where an unprecedented collapse and special administration regime may have been required before the end of March.
Instead, both this court decision and its subsequent appeal could not only decide the fate of the water providers for tens of millions of people and businesses but also have ramifications for every other water company.
Pyrrhic Victory
The approved high-interest £3bn was intended to provide enough cash to restructure the company, raise equity, renegotiate its debts and continue as a going concern, whilst at the same time asking for further bill increases and for Ofwat’s fines to be reduced, deferred or wiped clean entirely.
This money would, Thames Water claims, allow them to continue as a going concern until October 2025, although this would depend on a range of factors and assumes there would be no further major financial hardships between the approval of the loan and any potential restructuring.
However, it turned out that Thames Water could potentially not even get the money in time and are preparing contingencies for the possibility that they could run out of money before the end of March, according to a report by Bloomberg News as reported by Reuters.
Water Civil War
The approval of the emergency loan, known within the court hearings as the “company plan” was a decision that came with considerable controversy, much of which amongst Thames Water’s investors.
Customers for Thames Water have reacted with somewhat expected disgust that £800m worth of interest payments will be paid for via customer bill increases at a time when the company has been criticised for rampant underperformance and environmental destruction.
These issues were echoed by MP Charlie Maynard, who stated that further debt is not in the public interest of the customers and the wider population.
However, the biggest complaints were raised with other investors in Thames Water, who have argued that the approved plan would enrich one set of investors at their expense, an argument initially rejected by the High Court judge who argued it was better than the alternative of a special administration regime.
This has since led to a Court of Appeal challenge that could potentially force Thames Water into insolvency before it gets access to any of the loan funds.
The first hearing was scheduled for 11th March, but a report from Politico has suggested that if the case is not resolved and finances made accessible by 24th March, Thames Water will become insolvent and will end up in a special administration regardless of any efforts to stop it.
How Does This Affect The Rest Of The Water Sector?
As a private industry, a lot of the support and stability surrounding water companies is based on investor confidence, and a lack of this in the water sector has led to the rampant escalation of the issues surrounding Thames Water.
However, they are not the only company struggling. Reuters reported that Southern Water is attempting to acquire £900m worth of equity to stabilise its own financial outlook.
A collapse of Thames Water could make this process more difficult as investors reconsider investing in the water sector going forward, which could potentially force more water companies into the special administration regime.
The official policy of the UK government is not to interfere in matters concerning a private company, but this is a position that is increasingly becoming untenable.
Water companies are unusual amongst the private sector as they are natural monopolies that would cause significant harm to millions of people should they go out of business.
In any other sector, Thames Water’s decades of cavalier financial decisions, underinvestment in infrastructure, dividend and bonus payments and significant borrowing made against the company back when it was in little debt would have caused the company to cease as a going concern years ago.
This cannot happen, and the special administration regime is designed to allow for a temporary renationalisation if necessary, something that is rapidly increasing in probability.
What happens to Thames Water will have a domino effect on the rest of the sector, whether the rescue works or not.
