Thames Water’s largest bondholder has supported plans to split the company as it tries to avoid collapse.
The idea of splitting up Thames Water is gaining momentum in advance of the rescue plan , which bosses will unveil on Friday.
Luke Hickmore is a fund manager for Abrdn and he holds Thames Water secured bonds. He said that he would be in favor of a split , as long as it protected the interests of creditors.
This month, it was revealed that the bosses are exploring various scenarios in order to avoid nationalisation.
According to the proposal being considered, Thames Water – which currently serves 16 million customers – could be divided into smaller companies. One would cover London and the second would serve the Thames Valley and Home Counties region.
Due to its size, Mr Hickmore stated that Thames Water must achieve a positive result for “political as well as economic reasons”, because the risk of losing out on creditors would lower confidence levels in Britain’s entire infrastructure sector.
He said: “They’re one of the biggest issuers in UK.” This is a very important result for everyone, be it pensioners or insurers.
On Tuesday, it was revealed that Thames’s bosses were also reportedly considering a possible debt increase in order to secure the future of their company.
Sources in the City played down this possibility, asking why the supplier, already saddled with an 18bn pound sterling debt, would look to the debt markets.
A bondholder who sold out of Thames recently said: “It must be smoking something right?” The management team is in panic mode and trying to figure out how they could make it work, but they can’t.
One restructuring advisor who was involved in the discussions said: “I am mesmerized that more debt can be added. No one would permit it. “It seems insane to me.”
The speculation about Thames’ finances follows weeks of confirmation by Kemble, the parent company that represents shareholders, that it will cut off new funds to the business due to claims made by regulator Ofwat, claiming the business is “uninvestable”.
Since the announcement, it is believed that there has not been any dialogue between Thames Water and Kemble.
Thames Water is on the verge of bankruptcy after shareholders refused to fund a £500m package, despite the fact that company bosses claimed the company had £2.4bn in funds to last it the next 15 month.
In recent weeks, the likelihood of a collapse into special administration (where the Government takes over to keep the company running) has increased. The supplier still needs to convince Ofwat it must raise bills by 40% to ensure long-term profitablity.
Sources close to the company claim that a taxpayer bailout would cost £5bn just to “keep the lights on”.
One Thames bondholder stated: “We all run scenarios every morning, and worry about whether or not they will go through the special administration regime.”
Once the business is stabilised, it would be easier to sell Thames’ operations on to a competitor.
Colm Gibson said that it was far from certain whether Thames Water would emerge as a large, single company from the special administration. It’s possible to break it up into smaller water companies that serve local areas.
Due to the impending election, the Government is reluctant in intervening in the management of Thames Water. This could be a problem for Keir starmer if Labour wins the elections later this year.
The industry has been speculating that Labour would be in favor of a split, but the party denied the speculation on Wednesday.
Last week, Chancellor Jeremy Hunt stated that it would be “utterly absurd” for Ofwat if they granted Thames Water’s demand for higher household charges.
When asked if they had an obligation to inject more money into the company, he said that shareholders “had to sort out the mess”.
Thames Water has declined to comment.