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It has been another bumpy week for Thames Water. Thousands of South London customers were left without water after a pipe burst. The Financial Times reported that half the utility’s sewage plants lack the pipes and tanks to process enough waste water — leading untreated effluent to spill into rivers and waterways. The debt-laden utility appealed to raise customers’ bills by even more than the 35 per cent by 2030 that the regulator Ofwat has permitted, and has been wrangling in court over a proposed £3bn creditor bailout. It is time the company was put out of its misery via a special administration regime (SAR) — a form of temporary renationalisation — enabling its unsustainable finances to be restructured in the public interest.
Thames Water, which supplies a quarter of the UK population, is the poster-child for the failures of England’s experiment with privatising formerly public regional water companies, which were floated with zero debt in 1989. Its steady revenues from a captive market attracted financial buyers who, even more than happened at many counterparts, leveraged up its balance sheet to the hilt to maximise returns.
A regulatory focus on consumer prices and the operating entity, rather than on the arcane corporate structures above it, proved inadequate. Since rising interest on Thames Water’s £16bn net debt first caused funding issues in 2023, the debt has swelled to nearly £19bn.
A High Court judge has this month been hearing arguments over a proposed restructuring plan involving a £3bn loan from the utility’s top-tier bondholders, which include US hedge funds such as Elliott Management. The financing, at a steep 9.75 per cent annual interest rate, is intended to provide a “bridge” to a broader restructuring, allowing time to raise new equity and renegotiate debts. The judge is expected to publish his decision this week on whether the plan meets corporate legal requirements. If he rejects it, Thames Water has said it will run out of cash by March 24, so it will almost inevitably fall into special administration — the first water company in England and Wales to do so since privatisation.
Even if the £3bn bailout is granted, there is no guarantee new equity investment will be secured. The chief financial officer told the court he expected the utility’s total interest bill to reach £800mn-£900mn next year including the new loan costs, and its bill for restructuring lawyers and advisers could top £200mn. A Liberal Democrat MP representing environmental campaigners said about a third of Thames Water’s customer bills already went towards servicing its debt.
There is a strong argument, then, that administration is in the broader public interest and the best interests of the company’s 16mn customers — and may be the ultimate destination in any case. The SAR process is designed to enable administrators to impose a haircut on creditors to shrink the balance sheet, and restructure the company to make it viable for the future. Thames managers would be freed up to concentrate on turning operations around. The aim should be to return Thames to the market as a stable, privately owned firm.
Critics have suggested even a temporary renationalisation would be expensive for the government. But debt interest would be frozen, freeing up cash to invest in infrastructure. Conservative and Labour governments have worried that imposing losses on investors, some from overseas, would deter vital investment in other infrastructure projects. But an insolvency process is a normal part of capitalism, to ensure productive assets can be preserved and relaunched. In this case, it would be the best way to end a saga of mismanagement, financial engineering and ineffective regulation — and maximise the chances of a sounder business emerging.
