Don’t Allow a Takeover of Thames Water Says CKI’s Andrew Hunter

The government and Ofwat, the water regulator, are heading towards a precarious situation if they permit the takeover of Thames Water by its creditors. This viewpoint comes from Andrew Hunter, executive director of CKI, a Hong Kong infrastructure investor, whose proposal for Thames Water was rejected the previous year by the utility’s board. Hunter asserts that a special administration would be a more favourable outcome for Thames Water customers compared to the current creditor-led offer.

Hunter expressed concern that the creditors, led by distressed dealers and American hedge funds, are primarily focused on recovering their debt, not the long-term viability of the utility. They have proposed writing off £8.5 billion of Thames Water’s £20 billion debt but only if Ofwat waives penalties for the utility’s poor performance. Hunter contends that this approach makes the creditors unsuitable owners of a UK regulated utility.

Thames Water’s operational performance has been dismal, and the situation further deteriorated last year when shareholders withdrew from a previously committed £7.5 billion funding lifeline. The board’s prior decision to align with KKR, an American private equity group, which ultimately opted out of the deal, has complicated matters. Currently, negotiations are underway with the creditors, who are pushing their own takeover plan.

Hunter criticises the board’s ineffective competition among bidders and highlights concerns about the lack of expertise among potential new owners. Such issues heighten apprehension about regulatory exemptions demanded by the creditors, which could undermine the integrity of the UK’s regulatory framework. If one poorly performing company receives special treatment, it undermines confidence in the sector as a whole.

Hunter has boldly suggested that placing Thames Water into special administration may represent the most pragmatic solution. This approach would allow for a court-administered process aimed at finding a suitable owner for an essential service, while not placing the state in control or liability over Thames Water’s debts. Hunter believes that such a process could restore credibility and predictability to the industry.

Despite the creditors warning that special administration would harm the investment reputation of the UK water sector, Hunter presents a different perspective. He argues that it would demonstrate that regulatory mechanisms are functioning as intended, thereby reinforcing investor trust in the long-term stability of the industry.

As discussions continue, Ofwat remains cautious, engaging with the creditors to assess whether their proposals can significantly improve Thames Water’s operational performance. Hunter’s remarks underscore the importance of maintaining consistency in regulatory practices to protect the integrity of the water sector for both current and prospective investors.