(Bloomberg) -- Thames Water’s turnaround plan could come under the oversight of its regulator before the end of this year as the company races to avoid a May deadline when it’s set to run out of money.
Ofwat’s Chief Executive Officer David Black said it will seek to accelerate the Turnaround Oversight Regime and start close monitoring of Britain’s largest water company before the beginning of the next regulatory period on April 1.
“We would seek to bring the regime as soon as possible,” Black said in an interview. The utility is in crisis after shareholders halted new equity injections in March and its parent company defaulted on its debts.
Thames is on a deadline. It has £1.8 billion ($2.3 billion) in liquidity which will last until the end of May, unless it can find new shareholders to invest £2.5 billion in equity. It’s proving to be a tough sell with investors keen to see if Thames can persuade Ofwat to make any concession in the final version of its regulatory pricing regime due in December. Splitting up the business into two or more water companies could help make it more appealing.
A spokesperson for Thames Water declined to comment. It’s yet to agree with the proposals for the special regime.
Ofwat trustee
Ofwat wants to appoint a trustee with access to Thames’s accounts who would report back once a month on its performance against turnaround targets, Black said. It’s similar to the special measures that schools and hospitals in the UK are put into when they fall short of acceptable standards.
“We have to make the regime work,” Black said. “That’ll take some time to implement but it could happen relatively quickly.”
Thames suffered a further blow on Wednesday when S&P Global Ratings followed Moody’s Ratings by cutting Thames’s top-ranked bonds to junk, warning that the firm’s liquidity problems are unlikely to improve in the near term.
Questions remain about how Ofwat’s special oversight regime will be implemented, S&P said.
Thames was already in breach of its license after the Moody’s downgrade last week - all water companies are required to maintain an investment-grade credit score from two ratings firms. An infringement could bring a fine of as much as 10% of revenue.
To avoid the fine, Thames Water has asked Ofwat to instead consider possible “undertakings” to fix the license breach. That could allow it to avoid hefty fines.
Too big to fail
Thames supplies a quarter of England including London and is seen as too big to fail. Without a further cash injection, it may be forced into temporary nationalization by the government.
As well as a break up, Ofwat has suggested capping its debt, or a public listing as ways to fix its longer term problems and make it more attractive to investors.
Water companies are required to submit business plans, including proposed bills increases and infrastructure spending plans, to the regulator every five years.
Earlier this month Ofwat branded Thames’s next plan as “inadequate” and said it would incur a £140 million fine unless it improves. The watchdog criticized Thames for lacking ambition on cutting pollution from storm overflows in the sewage network, sewage spills into people’s homes and stemming chronic leaks.
(Updates with S&P downgrade in eighth paragraph.)
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