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Covalis Capital Bids £5bn For Thames Water Management Restructure

Beleaguered utility company Thames Water, which is currently struggling under the pressure of debts amounting to some £15 billion thanks to heavy borrowing in the years since privatisation in the late 80s, has been offered a lifeline from infrastructure investor Covalis Capital to the tune of £5 billion.

If successful, the move would see Covalis partner with the French utility firm Suez Group to manage a restructuring of Thames Water, with £1 billion to be provided by Covalis upfront and a further £4 billion raised from sales of company assets, the Guardian reports.

First seen by the Financial Times, the plans could see parts of Thames Water broken up, such as its operations in the Thames Valley, with a stock market flotation of the restructured business then pursued.

The UK government would also keep a seat on the board and retain a golden share of the company, which would give it rights to protect the supplier which, as the biggest water firm in the UK, provides water and sewage services to 16 million people across London and the Thames Valley. Suez itself would serve as an operating partner and wouldn’t own any shares.

There are other potential bidders putting their hats into the ring, including CK Infrastructure Holdings, a Hong Kong-based company that already owns Northumbrian Water and Castle Water.

Final offers for Thames Water must be in as of January, after industry regulator Ofwat will have finalised the extent to which customer bills can be increased, a decision that is due to be published on December 19th.

Although Thames Water has formally requested bill hikes of 53 per cent by 2030, Covalis believes that its plan would work alongside lower bills than that. However, the Covalis bid does rely on Thames Water being able to access £3 billion in emergency funding to stop it from running out of money in 2025.

In a statement, Suez said: “In an exclusive partnership with Covalis, [we are] submitting a non-binding offer 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.”

However, Gary Carter – national officer with union GMB – described the plans to take over the company and break it up as a “disaster” for both workers and consumers alike.

He went on to say that the bids “won’t stop the leaks nor pollution. They will only line the pockets of those who want to break it up. The government has to stop this vulture auction and take control of Thames in the interest of the public”.

Urgent repairs

A recent Guardian investigation found that £23 billion worth of Thames Water assets are now in urgent need of repair, with the company failing to tackle serious safety concerns and neither company managers nor regulators fully understanding just how serious some of the issues are facing reservoirs and the pipe network.

The amount of money required to repair Thames Water’s ailing infrastructure could potentially grow in line with regulatory pressure to reduce bills and cut costs, so the future looks particularly uncertain for the struggling firm.

If the company isn’t successful in its pursuit of securing £3 billion as an emergency funding package, with the aim being to keep it afloat for at least 12 months, it’s possible that it could be temporarily renationalised.

In an opinion piece for UNISON earlier this year, head of environment Donna Rowe-Merriman suggested that the Thames Water debacle made a good case for public ownership, saying that it’s clear that its business model has failed and the company is now unviable.

With shareholders refusing to pay £500 million to keep the company afloat and regulatory requirements creating an uninvestable business plan, and significant bill hikes apparently necessary to pay for infrastructure upgrades, Ms Rowe-Merriman called on the government to intervene and take control of the business through renationalisation.

Whatever happens, both businesses and domestic customers alike should brace themselves for a bill increase in the near future. For companies keen to reduce their water bills and start operating more sustainably, get in touch with the H2o Building services team today to see how we can help.