The Thames Water plant in Twickenham, London, in June, 2023. Britain’s biggest water supplier was banking on private equity firm KKR investing about £4-billion in new equity to effectively buy the company.Frank Augstein/The Associated Press
Thames Water suffered a major setback in its fight to avoid nationalization on Tuesday as it said U.S. private equity firm KKR had pulled out of a multibillion-pound rescue plan.
Britain’s biggest water supplier has been pushed to the edge by its £18-billion (US$24.35-billion) debt pile, and was banking on KKR KKR-N investing about £4-billion in new equity to effectively buy the company.
The government has said it is on standby in case Thames Water fails to recapitalize and needs to be temporarily nationalized in order to keep services running.
“The government is clearly keeping a very close eye on what’s going on,” Environment Minister Steve Reed told LBC Radio on Tuesday, after Thames Water said KKR had pulled out.
KKR declined to comment.
Britain’s Thames Water says fines need to be deferred to help company avoid state rescue
Thames Water is at the centre of a public backlash against the privatized water sector which has been blamed for polluting Britain’s rivers and seas while hiking bills and prioritizing dividend payouts over investment in infrastructure.
Public outrage over frequent sewage spills has prompted tough action from regulators, but Thames Water bosses have said punitive fines are hindering its efforts at a turnaround.
Thames Water CEO Chris Weston warned in mid-May that in order to help the company attract equity and avoid a state rescue, it would need relief from fines estimated to come in at £900-million over the next five years.
The government wants to reform the sector and has tasked former Bank of England deputy governor Jon Cunliffe with leading a commission to do so.
He said on Tuesday regulation needed to be overhauled. While water companies needed to be held to account, action should be proportional, he said.
“It means being able to help companies and support them when they need to improve so they don’t wind up in this spiral going down,” he told Sky News.
KKR’s withdrawal comes days after Thames was fined £123-million for sewage failures.
The announcement sent Thames’ bonds to record lows. Its 2040 bond dropped 4 pence in the pound to 69 pence while its euro-denominated April 2027 bond dropped 2 euro cents to just under 68 cents.
Chairman Adrian Montague said KKR pulling out after two months of due diligence was “disappointing.”
Without fresh funding, Thames Water could run out of money in the middle of 2026.
Mr. Montague said the company, which has 16 million customers in southern England, would talk to its senior creditors, who have presented their own plan, likely to involve some equity investment and a debt-for-equity swap.
The creditors already effectively own the company after writeoffs by the previous shareholders. A creditor spokesperson declined to provide more details on their plan.
While Environment Minister Reed acknowledged the situation was “difficult,” he said the company was stable, adding that the government was ready to step in.
Elected last July, the Labour government had promised to clean up Britain’s waterways and get on top of the sewage scandal. But in setting up Mr. Cunliffe’s water commission, it ruled out renationalization as an option.
The interim report said risk in the sector needed to be reduced to attract investors willing to accept lower returns over the longer term.