Thames Water, the largest water utility in the UK, has received a proposal from Covalis Capital that includes a partnership with France’s Suez to oversee a major restructuring and prepare for a potential public stock market listing.
This bid arises as Thames Water grapples with severe financial challenges, carrying nearly £19 billion in debt and the risk of depleting its cash reserves early next year.
Covalis intends to dismantle the utility by divesting key assets, which may include entire areas such as the Thames Valley, and subsequently listing the remaining core operations. The proposal includes a “golden share” for the UK government, allowing it a board seat and strategic oversight.
Covalis plans to inject £1 billion initially and raise an additional £4 billion through asset divestitures, refinancing, and the anticipated listing, which is projected to happen within two to three years.
Suez, a prominent player in France’s water infrastructure sector with a workforce of 5,000 in the UK, has entered into an exclusive agreement to serve as the operating partner for this initiative.
Although Suez will not take an equity position in Thames Water, it will offer advisory and operational support to tackle the utility’s issues. Suez confirmed its “exclusive” arrangement with Covalis to provide a “non-binding offer to advise and assist Thames Water.”
At this point, Suez’s role is confined to an advisory capacity, focusing on ensuring the project’s success and addressing the specific challenges faced by Thames Water.
This bid comes amid rising concerns from Thames Water’s existing investors, which include significant pension and sovereign wealth funds from China and Abu Dhabi. They have labeled the utility as “uninvestable” and are considering divesting their stakes, potentially facing losses of up to £5 billion. Thames Water has also indicated that its infrastructure is deteriorating, posing risks to public safety.
The utility needs substantial investment to sustain services for its 16 million customers in London and surrounding areas. It has requested the regulator, Ofwat, to approve a 53% increase in bills by 2030 to finance operations and essential upgrades, totaling £3.25 billion by the decade’s end.
Covalis believes its proposal can succeed even with less favorable concessions from Ofwat, contingent on reaching agreements regarding penalties and investment schedules.
Other potential bidders have surfaced, including Hong Kong-based CK Infrastructure Holdings, which owns Northumbrian Water, and Castle Water, co-owned by Conservative party treasurer Graham Edwards. Castle Water had previously acquired Thames Water’s non-household division in 2017 and also plans to list the company on the stock market if successful.
The Covalis bid hinges on Thames Water securing a £3 billion emergency loan from senior “class-A” creditors, such as Elliott Management and Silver Point. This loan, which carries a high interest rate of 9.75%, aims to provide immediate liquidity but has faced criticism regarding its terms. A rival loan proposal has been suggested by lower-ranking “class-B” bondholders, though it remains uncertain which proposal will be accepted.
Final bids are expected in January, following Ofwat’s decision on the proposed bill increases. Covalis, Castle Water, and Thames Water have chosen not to comment on the ongoing negotiations.
Source :Sky news
