Thames Water rescue plan attacked by excluded bidders | EUROtoday

A rescue proposal by lenders to Thames Water has been criticised by different potential bidders, pissed off to have been frozen out of talks on the way forward for the UK’s largest water utility.

Thames Water is working out of cash and resides on an emergency lifeline from the group of lenders which are collectively owed greater than £13bn.

Hong Kong-based CKI Holdings and UK-based Castle Water have each complained their competing affords have been shut out by the present lenders’ group who they are saying are eager to minimise their losses.

Without a rescue, the UK’s largest water utility will collapse right into a authorities supervised administration course of by early subsequent 12 months.

The way forward for Thames Water hangs within the stability. The water and waste utility that serves 16 million folks is sort of £20bn in debt and residing off an emergency mortgage granted by its current lenders eager to stave off collapse.

Those lenders – now often known as London and Valley Water – are locked in unique talks with regulators and the federal government over a rescue proposal.

This plan would see 25% of their money owed written off and greater than £4bn of latest money injected, however would require years of leniency on fines for air pollution incidents. If Thames Water collapses into administration, these money owed may very well be written off by a better quantity.

But different potential bidders have expressed frustration that this group of lenders has efficient management of the corporate and has used that place to close out rival – and, they argue, higher – proposals.

CKI Holdings is already an proprietor of Northumbrian Water and UK Power Networks. An evaluation by Barclays says that Thames’ buyer payments may very well be practically 20% greater in 5 years’ time if a rescue plan proposed by lenders to the stricken utility is authorized.

Barclays’ analysis calculates that the lenders’ proposal requires prospects to bear among the future operational and monetary dangers to the corporate, including £116 to payments when they’re revised in 2030, and require extra leniency from the regulator from fines over sewage and spills.

The Barclays analysis word is aimed toward potential traders in CKI. The lender consortium advised the BBC it rejected each the idea and the conclusion of what sources described as “a note designed to curry favour with an existing or potential clients”, and insisted that CKI had been given each likelihood to make a compelling bid earlier within the course of.

A spokesperson for the bondholders advised the BBC: “We reject these misleading statements and do not recognise the assumptions they are based on.

“We have at all times mentioned that buyer payments will stay consistent with these contemplated within the Final Determination (pricing plan laid out by Ofwat earlier this 12 months) for the subsequent 5 years.

“Having been given multiple opportunities throughout a 12-month competitive equity process, CKI did not put forward a viable proposal to fix Thames Water’s complex problems.”

Even if CKI was provided a contemporary likelihood to bid, Barclays concedes that the sale of essential infrastructure to a China-linked proprietor would elevate questions of nationwide safety.

The report references issues raised by Sir Simon Gass, former head of the Joint Intelligence Committee, {that a} sale to CKI would doubtlessly give Beijing entry to delicate client information.

Separately, unbiased water retailer Castle Water has mentioned it’s ready to inject an additional £1bn into Thames than the proposal by London and Valley Water.

A spokesperson for Castle Water advised the BBC: “Our approach is based on increased upfront investment that will overhaul the assets and infrastructure that is currently undermining Thames’ performance and deliver the sort of step change in service delivery that customers deserve.

“It will even tackle head on the problem of air pollution. When it involves air pollution, you merely can’t compromise.”

However, Castle Water concedes that its proposal is not a formal bid at this stage and sources close to London and Valley and Thames Water itself have questioned the bid’s credibility.

It is not just would-be bidders who are critical of the current process.

Economist and infrastructure expert Prof Dieter Helm has also argued that the current debt holders’ primary concern is to limit the extent to which their existing loans are written off and not the long-term interests of the company and its customers.

“What the plan represents is a option to salvage as a lot cash as attainable for these key bondholders,” he says.

He adds the bondholders’ plan does not contemplate a return to normal performance standards on sewage spills and leaks for another 10-15 years.

Prof Helm argues the best way to get a fresh start for Thames is through a government-supervised administration – a so-called Special Administration Regime (SAR) – that would see a much bigger debt write-off than the 25% the current lenders are proposing.

The government is keen to avoid an SAR as, although the public purse would eventually be reimbursed through a sale, it could cost billions in the short to medium term for a chancellor struggling to find enough money to stick to her own tax and spending rules.

The consortium of bondholders are hopeful that discussions with Ofwat and the Treasury will end in an overview settlement in December.