Covalis and Suez Partnership Makes £5 Billion Rescue Bid for Thames Water

December 6, 2024 TruthUSA

Thames Water, burdened with debt, is under scrutiny for its financial stability and adherence to environmental regulations.

Covalis Capital, in collaboration with France’s Suez Group, has put forward a £5 billion offer to purchase struggling Thames Water.

The bid involves an initial £1 billion payment and an additional £4 billion from asset sales and refinancing within two to three years.

As the largest water utility in the UK, Thames Water holds over £16 billion in debt and requires at least £3.3 billion in equity over the next five years.

Since March, Thames Water has been under increasing pressure after being deemed “uninvestible” by investors who withheld new capital.

Its parent company, Kemble Water Holdings Ltd., withheld £500 million in interest payments due in April, leading Thames Water to default on some debts, raising doubts about its survival.

In July, water industry regulator Ofwat placed Thames Water under special measures and rejected the company’s request for a 44 percent increase in consumers’ water bills over the next five years.

In October, Thames Water acquired a £3 billion emergency loan to sustain operations until 2025. This funding has improved the company’s financial stability as it works towards a long-term financial solution, according to Thames Water CEO Chris Weston.

However, Thames Water is still under scrutiny for its poor pollution record, resulting in a £104 million penalty for its inadequate management of wastewater treatment works and networks.

Ofwat has instructed Thames Water to refund £56.8 million to customers due to its subpar performance in pollution control, leak management, and customer satisfaction.

Ofwat is scheduled to announce its final decision on Thames Water’s five-year business plan on December 19, 2024, which will include proposals for bill adjustments and investments.

Meanwhile, Ofwat recently announced its prohibition of Thames Water, Yorkshire Water, and Dŵr Cymru Welsh Water from using customer funds for executive bonuses totaling £1.5 million.

Under new regulations, the regulator can intervene if water companies fail to demonstrate a clear link between executive bonuses and performance.

Activists are urging the government to end the era of “pollution for profit” and impose strict penalties on water companies that fail to meet environmental standards.

Financial Support

The success of Covalis’s bid relies on Ofwat allowing Thames Water to postpone planned infrastructure upgrades for a few years, as the bidders find the current plans unrealistic.

Covalis holds stakes in major European infrastructure firms, including RWE, the German energy giant. Suez, a prominent water services provider in France with a significant presence in the UK, would provide advisory services in the partnership.

Suez’s focus would be on assisting Thames Water’s management in modernizing operations through updated IT systems and advanced leak monitoring technologies.

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

A spokesperson from Suez confirmed the company’s “exclusive partnership” with Covalis for the bid, aiming to leverage Suez’s expertise for Thames Water’s benefit.

Another potential bidder for Thames Water is Castle Water, an independent business water retailer.

This Scottish utility firm has ties to Conservative Party treasurer Graham Edwards and former investment banker John Reynolds. According to PA news agency, Castle Water plans to propose £4 billion for a majority stake in Thames Water.

Other potential bidders include Hong Kong’s CK Infrastructure Holdings and private equity giant KKR, which have stakes in Northumbrian Water.

PA Media contributed to this report.

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