In a significant development for the UK’s largest water utility, Thames Water has received a substantial bid from Covalis Capital, partnering with France’s Suez to orchestrate a strategic break-up of the troubled company. The proposal emerges as Thames Water grapples with nearly £19 billion in debt and faces imminent cash flow challenges in the upcoming year.
The proposed restructuring plan involves Covalis providing an initial £1 billion investment, followed by an ambitious strategy to raise an additional £4 billion through asset sales, refinancing, and a future stock market listing. The comprehensive plan includes the potential sale of entire regional operations, such as the Thames Valley area.
Under the proposed arrangement, Suez would serve as the operating partner, leveraging its extensive experience in water management across France and its existing 5,000-strong UK workforce. The French utility giant has confirmed an exclusive agreement with Covalis, though it emphasises its role would be strictly advisory without any direct shareholding in Thames Water.
The timing of this bid is crucial, coming just before Thursday’s deadline for indicative offers. The utility company currently serves 16 million customers across London and surrounding regions, requiring substantial investment of £3.25 billion by 2030 for infrastructure improvements and operational continuity.
Current stakeholders, including prominent pension funds Omers and USS, alongside Chinese and Abu Dhabi sovereign wealth funds, have declared the business “uninvestable” and signalled their intention to withdraw, potentially accepting a £5 billion loss. The situation is further complicated by Thames Water’s request for a 53 per cent increase in customer bills by 2030.
The bid’s success may hinge on accessing a £3 billion emergency loan, currently under negotiation with senior creditors including US hedge funds Elliott Management and Silver Point. This financial lifeline comes with a 9.75 per cent interest rate and a two-and-a-half-year maturity period, though a competing, lower-cost proposal from class-B bondholders remains on the table.
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