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Thames Water secures $1.45 billion investment to avert nationalisation

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2023-07-11

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In a bid to prevent the looming threat of nationalisation, Thames Water has announced that investors have agreed to inject £750 million ($1.45 billion) into the company.

However, the UK's largest water utility cautioned that it would require additional investments in the coming years.

With a staggering £14 billion debt and mounting pressure over sewage releases into British rivers and seas, Thames Water sought to put an end to weeks of speculation about its future.

The company emphasised that it was not on the brink of needing a government rescue.

Thames Water's interim co-chief executive, Cathryn Ross, firmly dismissed the possibility of the company entering the government's special administration regime, stating, "Absolutely not." She reassured the public that the company had £4.4 billion of capital reserves available for drawing down, emphasising that they were far from reaching that trigger point.

Despite the latest injection of £750 million, which is less than the £1 billion initially requested last year, Thames Water acknowledged the need for further equity of approximately £2.5 billion between 2025 and 2030.

Shareholders, including Ontario Municipal Employees Retirement System, the UK's Universities Superannuation Scheme, and China Investment Corp, have recognised the necessity of additional funds to support the company's turnaround plan.

Thames Water's debt predicament has been exacerbated by over half of it being linked to inflation.

As interest rates rapidly rose in the past 18 months, the cost of servicing the debt has surged, compounding the company's financial challenges. Coupled with a decline in performance in recent years, Thames Water faces limited flexibility to fund the upgrade of its ageing infrastructure.

In June, concerns regarding the effectiveness and pace of Thames Water's turnaround plan arose when its CEO resigned abruptly.

The company appointed two interim co-chief executives and a new chairman to address these concerns and steer the organisation back on track.

Ian Marchant, Chairman of Thames Water, hailed the additional investment as the largest equity support package ever witnessed in the UK water sector.

He emphasised that it underscored the shareholders' commitment to facilitating Thames Water's turnaround.

Following the announcement of the new investment, some Thames Water bonds experienced an increase of up to two pence in the pound.

In its annual report released on Monday, Thames Water revealed that its gearing level had decreased from 80% to 77%.

Core earnings, or EBITDA, fell by 3% to £1.1 billion, while revenue increased by 4% to £2.3 billion pounds.

Further investments will be crucial to addressing its debt burden, improving performance, and ensuring the sustainability of its operations.

Thames Water's successful securing of £750 million provides a temporary lifeline, but the company will need to navigate future obstacles to fulfil its turnaround ambitions and maintain its status as a vital water utility provider in England.

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