Thames Water’s chief executive has played down fears that the firm could be put into special administration after its shareholders withdrew a promised £500 million cash injection due for the end of this month.
Speaking after the announcement that shareholders had ruled Thames’ business plan “uninvestable”, chief executive Chris Weston said discussions of special administration remained “in the land of hypothetical outcomes”.
“There’s a lot of water to go under the bridge, there is the process of looking for new equity, we can talk to our various creditors further down the line,” he said. “There’s a huge amount that has to happen before you can even begin to conclude that (a special administration regime) is the case.”
Weston said the company was continuing to “pursue all options” to secure the required equity from new and existing shareholders.
The chief executive, who joined the organisation in December, insisted the situation may shift after Ofwat publishes its draft determination for the company’s five-year business plan in June.
He said Ofwat had not ruled out the proposed 40% bill increase in Thames’ PR24 plan, however based on discussions with the regulator, investors were not willing to back the current iteration of the plan.
Chief financial officer Alastair Cochran explained that Thames has £2.4 billion of liquidity available in undrawn facilities. This, he said, would fund the company’s operations for 15 months and it will seek to raise additional debt to extend its liquidity further.
In December, Cochran who was acting as interim co-chief executive together with Cathryn Ross, admitted Kemble had insufficient funds available to service debts maturing over the coming years.
Kemble Water Holdings has external debts of £1.35 billion maturing between April 2024 and 2028, with £190 million due next month.
Of these loans, Cochran stressed that the regulated water company is entirely ringfenced, so owes no residual obligations to the parent.
“They are distinct entities, so if anything were to happen to Kemble, it has no implications for the ongoing operations of Thames Water. Whatever happens to Kemble, Thames Water keeps operating,” Weston added.
In the scenario that Kemble became insolvent, the creditors do own shares of Thames Water, Cochran said.
The regulated business “will continue to finance itself as it has done in the past to be able to provide services and we would clearly go and seek the equity that Thames need to invest in the next five-year regulatory cycle,” the CFO explained.
Weston denied that shareholders were engaging in brinkmanship with the regulator, an accusation that environmental audit committee member Barry Gardiner had levelled at both Thames and Ofwat in a parliamentary hearing in December.
The future of the company now hinges on the PR24 draft determination Ofwat hands it in June, and how acceptable that is to existing or new investors.
“Once we get to a draft determination, and ultimately the final determination, that crystallises the business case that underpins our investments into infrastructure between 2025-30 that we can test in the market,” Weston said.
“Our current shareholders will have the opportunity to look at it again and decide whether they want to invest or indeed we can go to the market and see what other providers of equity are out there.”
He added that as part of the price control process, should the shareholders conclude the final determination is not investable then the company has the right to opt for a referral to the Competition and Markets Authority (CMA).
“It is faith in that process working that we have to hang our hat on, otherwise it gets extremely difficult to balance the various stakeholders,” he concluded.
Shareholders had committed to a three-year turnaround plan created by the company last year, which succeeded the eight-year plan former chief executive Sarah Bentley had designed.
Thames’ draft business plan, submitted in October, set out the case for £18.7 billion of spending over AMP8, with customer bills set to rise 40% as a result. At the time the company called it an “ambitious but credible plan”.