Thames Water Receives £5 Billion Rescue Bid From Covalis and Suez Partnership

The Thames Water logo is seen on protective fencing around a pipework replacement site in London on April 4, 2024. Leon Neal/Getty Images

Investment firm Covalis Capital, in partnership with France’s Suez Group, has submitted a £5 billion bid to acquire debt-ridden Thames Water.

The proposal includes £1 billion upfront and £4 billion from planned asset sales and refinancing within two to three years.

The UK’s largest water utility, Thames Water is in more than £16 billion in debt and needs at least £3.3 billion in equity over the next five years.

Thames Water has faced increasing pressure since March, when investors deemed it “uninvestible” and withheld new capital.

The firm’s parent company, Kemble Water Holdings Ltd., pulled £500 million in interest payments, due at the end of April. As a result, Thames Water defaulted on some of its debts, heightening concerns of its survival.

In July, water industry regulator Ofwat put Thames Water into special measures and rejected the company’s request to increase consumers’ water bills by 44 percent over the next five years.

Adding to the firm’s financial pressures was the downgrade to ‘junk’ rating status, announced by the ratings agency Moody’s in July.

In October, Thames Water secured a £3 billion emergency loan to maintain operations into 2025. The funding put the firm on a “more stable financial footing” as it seeks a long-term solution to financial resilience, according to Thames Water CEO Chris Weston.

However, the utility continues to face scrutiny over its poor pollution record, including a £104 million penalty for failing to manage its wastewater treatment works and networks.

Ofwat has also ordered Thames Water to return £56.8 million to customers over its poor performance in pollution, leaks, and customer satisfaction.

Ofwat is expected to deliver its final verdict on Thames Water’s five-year business plan on Dec. 19, 2024. The verdict will include proposals for customer bill increases and investment.

Meanwhile, Ofwat announced last month it would block Thames Water, Yorkshire Water, and Dŵr Cymru Welsh Water from using customer funds to pay £1.5 million in executive bonuses.

Under new powers, the regulator can intervene if water companies fail to prove that executive bonuses are adequately tied to performance.

Campaigners have called on the government to end the “pollution for profit” era and enforce “strong legal sanctions” against water companies that fail to meet compliance standards.

Financial Lifeline

Covalis’s bid depends on Ofwat allowing Thames Water to delay its planned upgrades to infrastructure and systems for a few years, as bidders believe the current plans are unrealistic.

Covalis has stakes in major European infrastructure companies, including the German energy giant RWE. Suez, a leading water services provider in France with about 5,000 employees in the UK, would take on an advisory role in the partnership.

Its focus would be on helping Thames Water’s management modernize operations by implementing updated IT systems and advanced leak monitoring technology.

However, Suez would not hold any ownership shares in Thames Water. The government would retain a “golden share” in the company, granting it a seat on the board and additional special rights.

A spokesperson for Suez confirmed its “exclusive partnership” with Covalis on the bid. The company said it aims to “advise and assist Thames Water by leveraging Suez’s expertise in technical advisory and organisational optimisation”.

“At this stage, Suez’s scope of work is limited to an advisory mission to ensure the project’s success and address the specific challenges faced by Thames Water,” the spokesperson said.

Another reported bid to acquire Thames Water was set to come from Castle Water, an independent business water retailer.

The Scottish utility firm is co-owned by Conservative Party treasurer Graham Edwards and former investment banker John Reynolds.

According to PA news agency, Castle Water plans to propose £4 billion in return for a majority stake in Thames Water.

Other reported bids are expected to come from Hong Kong firm CK Infrastructure Holdings and private equity giant KKR, which together own stakes in Northumbrian Water.

PA Media contributed to this report.