Thames Water has been dealt yet another blow, after US private equity firm KKR pulled out of plans to invest in the heavily indebted supplier.
KKR had been chosen by the embattled water company as its preferred bidder at the end of March to invest more than £3 billion of new equity to help keep it operating, amid fears the supplier was running out of cash.
But the investment firm has now indicated it would not be in a position to proceed with a bid, leaving the future Britain’s biggest water supplier with 16 million customers in doubt.
The withdrawal of the deal brings the prospect of nationalisation into question once again, should it fail to secure a rescue deal.
Thames Water is now progressing talks with senior creditors for an alternative to stabilise its finances and said it intends to take forward discussions with “certain senior creditors” on an alternative plan to recapitalise the business.
It will also hold talks with regulator Ofwat on the senior creditors’ plan alongside other stakeholders.
Sir Adrian Montague, chairman of Thames Water, said: “Whilst today’s news is disappointing, we continue to believe that a sustainable recapitalisation of the company is in the best interests of all stakeholders and continue to work with our creditors and stakeholders to achieve that goal.
“The company will therefore progress discussions on the senior creditors’ plan with Ofwat and other stakeholders.
“The board would like to thank the senior creditors for their continuing support.”
While KKR was the company’s preferred bidder, it said at the time it would also continue talks with senior creditors on a parallel alternative transaction, given there was no certainty over a deal being finalised with KKR.
Thames Water is about £19 billion in debt and MPs were told last month that at one point this year it had about five weeks’ worth of cash left before going bust.
That was before it secured an extra £3 billion loan deal, which effectively stopped it from being renationalised and falling under Government control.
Environment Secretary Steve Reed said the Government was “keeping a very close eye” on the situation at Thames Water.
Mr Reed told LBC Radio that “Thames itself remains stable” but added: “The Government is clearly keeping a very close eye on what’s going on. We’re monitoring the situation, but there’s no disruption to water supply. Thames have got a number of options that they’re exploring.”
He said that “as things stand” Thames Water is “a stable, ongoing company” but the Government was “ready for any eventuality”.
“If the circumstances happened with any company, any water company, where there was a breach and it would need to be put into special administration, that would happen but, as things stand, that’s not applying to any company right now.”
It comes after a new interim report found the water sector in England and Wales needs a “fundamental reset” after being plagued with “deep-rooted, systemic” failures.
The Independent Water Commission calls for a “fundamental strengthening and rebalancing” of Ofwat’s regulatory role, calling for the watchdog to adopt a more supervisory approach to its oversight of water firms on Tuesday.
This could include benchmarking companies against one another to justify customer bills and assess efficiency.
It also urges the Government to provide clearer direction, proposes greater regional decision-making around local water systems and emphasises the need for a greater focus on long-term, responsible investment and ownership within the industry.
Surfers Against Sewage said the report begins to recognise the “criminal behaviour, chronic lack of investment and woeful mismanagement which has led to sewage filled seas is a direct result of our profit driven system”.
CEO of Surfers Against Sewage Giles Bristow said: “The commission’s final recommendations must reshape the water industry to put public health and the environment first. Until we have this, we will continue to swim and surf in the deluge of sewage that pours into our waters whilst shareholders continue to cream of profits.”
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