Thames Water starts cash talks as it battles to stay afloat

20th Sep 2024 08:44

(Sharecast News) - Crisis-struck Thames Water has started discussions with stakeholders about releasing more cash reserves, it was confirmed on Friday, as it battles to stay afloat.

The vastly-indebted utility has warned it will run out of money by May 2025 if it does not raise £3.25bn over the next five years.

In an update on Friday, Thames Water confirmed that a formal process to raise new equity would get underway in the coming weeks. But it warned it was unlikely to conclude until after Ofwat, the regulator, made its final decision on tariffs.

Thames Water, Britain's biggest water utility, wants to significantly raise bills but Ofwat has rejected the request.

Thames Water submitted its response to Ofwat's draft determination for 2025 at the end of August. But the final determination is not due until December, and could yet be moved to January 2025.

The utility said it had £1.57bn of liquidity as at 31 August, including £1.15bn in cash and cash equivalents and £0.42bn in Class A and Class B undrawn committed facilities. It also has a further £0.55bn of undrawn reserve liquidity facilities should it enter a standstill under the financing.

"The combination of these resources provides a liquidity runway to May 2025," it said.

"As contingency planning, we have entered into discussions with our financial stakeholders to release cash reserves under our financing. This would require majority creditor consent.

"If consent were not forthcoming, and should it not be possible to draw the Class A and/or Class B facilities, available cash and cash equivalents would expire at the end of December 2024, whereupon we would enter standstill under our financing."

Thames Water, which supplies water and sewage services to around 16m homes, is engulfed in both financial crisis and a growing scandal about its performance.

Its debt mountain currently stands at around £18bn, but it needs billions in investment after conceding that its ageing infrastructure posed a risk to public health and safety.

It has also long been criticised for both its poor performance record, including multiple leaks and repeated sewage discharges, and for paying out high dividends. But it was thrown into crisis in March when its owners, pension funds Omers and USS as well as a number of sovereign and private equity funds, refused to put extra equity into the struggling business. They claimed the business was "uninvestable".

In July, its credit rating was slashed to 'junk' by both Moody's and S&P, making refinancing harder and leaving it in breach of its licence conditions. It was also put into special measures by Ofwat.