Thames Water is facing a financial challenge as it struggles to meet an upcoming debt repayment deadline, according to the company’s leadership.
The UK’s largest water supplier is dealing with £1.4 billion in external debt due to mature in the next few years, including a significant £190 million due in April 2024.
Alastair Cochran, the joint interim chief executive, acknowledged to the Environment Select Committee that Thames Water’s holding company currently does not have the necessary funds for the initial repayment due in April 2024.
Sir Adrian Montague, the Chairman, mentioned that the company is negotiating with lenders to extend the repayment deadline. This extension is sought until after the 2024 price review by the regulator Ofwat is published. He proposed to the lenders that extending the maturity would be beneficial, as Thames Water’s financial situation will be clearer following Ofwat’s determination.
This situation underscores the financial difficulties Thames Water is experiencing, compounded by a substantial debt burden. The company recently reported an increase in its debts to £14.7 billion for the six months leading up to September, alongside a 54% decrease in profits to £246.4 million.
Thames Water’s chairman has justified the company’s choice to distribute a £37.5 million dividend in October, despite not meeting its targets for pollution control and leakage reduction.
Sir Adrian Montague, addressing the Environment Committee of MPs, explained that while there was no mandatory requirement to issue this dividend to its parent company, Kemble Water, the decision was strategic. The aim was to ensure Thames Water’s continued access to future shareholder equity, vital for its investment needs, especially considering its £14.7 billion debt.
Ofwat, the regulatory body, has recently initiated an investigation into this dividend payment.
Sir Adrian emphasized to the MPs the importance of preventing Kemble Water from defaulting. He expressed concern that any default could hinder or completely halt the flow of additional equity from shareholders. This equity is crucial for Thames Water’s operations, and its absence would necessitate cutbacks in spending, adversely affecting customers.
He concluded by stressing the necessity of maintaining Kemble Water’s financial stability, as its failure would negatively impact Thames Water’s ability to secure new equity.
