A planned £3 billion emergency loan for Thames Water could incur more than £800 million in interest and additional costs, raising serious concerns about the impact on customers and infrastructure improvements. Britain’s largest water utility, currently burdened with £19 billion in debt, recently secured approval from most lenders for this new financing arrangement.
The loan, requiring court approval, aims to prevent the company from running out of cash post-Christmas and avoiding renationalisation under government control. The debt package carries a substantial 9.75 per cent interest rate, alongside nearly £200 million in fees and additional incentives, potentially pushing total costs beyond £800 million over its 2.5-year term.
Infrastructure finance specialist Scientific Infrastructure and Assets warns that the fully drawn loan would add approximately £300 million in annual interest expenses, significantly impacting the bills of 16 million customers. The mounting financial pressure has intensified calls for Prime Minister Sir Keir Starmer’s Labour government to intervene, though they currently favour private-sector solutions over renationalisation.
The lending group includes prominent US hedge funds like Elliott Management and major asset managers such as M&G. Sources close to the lenders suggest the interest payments would be funded through the debt facility itself rather than customer bills, though this arrangement increases the overall facility size.
Thames Water’s existing shareholders, including pension funds Omers and USS, alongside Chinese and Abu Dhabi sovereign wealth funds, have declared the business “uninvestable” and indicated their willingness to accept potential losses of £5 billion. The company awaits Ofwat’s decision next month regarding proposed customer bill increases, having requested a 53 per cent rise by 2030.
Critics argue this additional high-interest debt could further strain the company’s resources and potentially lead to increased customer bills, despite assurances from Ofwat that interest costs are not directly passed to consumers. The situation continues to evolve as Thames Water seeks a long-term solution to its financial challenges.
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