Thames Water plans to pay out £2bn as dividends over the next 10 years despite fears of the company’s demise.
In a revised plan of business submitted to the regulator Ofwat by the bosses, they said that they planned to continue rewarding shareholders despite financial pressures pushing it towards bankruptcy.
Thames Water has buried figures in a spreadsheet with more than 100 tabs. The company plans to pay out around £2bn between now and the year 2035, which is equivalent to up to £290m per year.
Dividends of around £860m will also be paid between now and 2030. Before cutting off funding last month, shareholders had committed to investing more than £750m by the year 2025 .
Senior industry figures were stunned by Thames Water’s decision to continue payouts to investors during a turbulent time.
Thames Water made payments in recent years to Kemble its unregulated parent, which is owned a group of investors, including sovereign funds from Abu Dhabi, China, and other countries.
The cash will be used to pay off the debt of the company, rather than going directly to investors.
These latest revelations are likely to increase political scrutiny, as Thames Water attempts to convince Ofwat of its controversial plan to increase household bills from £433 to £627 in 2030.
Ofwat’s approval of the planned increase could decide the fate of Britain’s largest water provider, as it runs the risk of running out of money within 15 months.
Thames has been under pressure as it battles a £18bn debt load. The company provides water and sewer services to 16m homes.
The value of the company has grown over the last decade, as former owners such as Australian bank Macquarie have taken out large dividends.
Macquarie owned the business between 2006 and 2016, during which time the bank lent out approximately £2.7bn. This included £656m just in one single year.
Fears that Thames Water could collapse have led the Government to prepare contingency plans, code-named Project Timber, for a taxpayer funded bailout.
To avoid nationalisation, the company’s bosses are asking for higher bills in order to spend billions on aging infrastructure such as leaking pipes and sewage spills.
Thames Water announced on Monday it will invest PS21.7bn to tackle environmental issues. This is an increase from the £18.7bn pledged in October.
The latest revelations about payouts are concerning, especially since Ofwat has already begun an investigation into a separate payment made to Kemble by Thames Water last year of £37.5m.
Thames Water has long maintained that it hasn’t paid a dividend since 2017 to its external shareholders. Its latest business plan states that the company will not pay out any dividends until 2030.
has continued to make payments to Kemble which is on the verge of default after its default earlier this month.
Ofwat does not distinguish between internal and external payouts. It has announced previously that it can block payments if the financial health of a water company is in danger.
The new powers enable a closer look at Thames Water which has been lobbying Government and Ofwat for it to be allowed to pay dividends and increase bills.
Chancellor Jeremy Hunt criticised the plans for the company’s recovery earlier this month, when he stated that the investors of the company had “an obligation” to fix the mess.
A spokesman for Ofwat said: “Since Octobre, we have been in discussion with all companies. We have checked on their plans and sought further information.
In the past few months, there have been additional publications that clarify the legal obligations of companies.
Both of these factors forced companies to review and revise the plans they had proposed, as well as their forecasts for expenditures. This was to ensure that all legal requirements were met.
We note that Thames Water’s business plan has been updated. On 12 June, we will publish a draft of our view on the plans of companies.
Kemble’s spokesman stated: “Shareholders have committed to support an additional £3.25bn in investment, on top of the £500m that was provided last year.
They pledged to not take dividends from the business until there was a turnaround, but not before 2030. Thames’ dividends would only be used to pay the debt needed to fund the investment of the network.
Thames Water has declined to comment.