As an independent review sets out a vision for cleaning up the water industry, a real-world example of why the sector is in such deep trouble floats into view.
The announcement that Thames Water’s preferred investor KKR will not after all be injecting £4bn for an equity stake is, first and foremost, a crisis for the debt-laden company, increasing the chances taxpayers will have to throw it a lifeline.
Yet it also encapsulates the fundamental challenges Sir Jon Cunliffe’s Independent Water Commission is trying to address.
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A regulated utility that should offer a regular, predictable, low-risk flow of water to customers and returns to investors, is instead sinking under the weight of its own debt and a failing system.
Rapacious mismanagement and misguided regulation may have allowed historic investors in Thames to make a killing, but its current shareholders have been wiped out, its creditors are facing substantial losses on £20bn of debt, and now even a private equity giant immortalised as “the barbarians at the gate” of corporate America cannot stomach a stake.
Sky News understands one factor in their decision was the political risk of investing in water, given criticism of the sector from ministers, campaigners and the media, and uncertainty over the future of regulation.
In the short term Thames thinks it can fill the hole left by KKR by turning to its senior creditors, a group including institutional investors BlackRock and Aberdeen and hedge funds Elliott and Silver Point.
With control of around £12bn of the £16bn of regulated company…
