(Bloomberg) -- Castle Water Ltd. will offer to inject £4 billion ($5.1 billion) into Thames Water this week to help save the beleaguered utility from administration, according to a person familiar with the matter.
Thames, the UK’s biggest water and sewage company, asked potential investors to submit indicative, non-binding bids by Dec. 5.
The utility is desperately seeking a multi-billion pound investment to avoid potential temporary nationalization. An equity stake of the size Castle plans to offer would go a long way toward that effort, though the company alone doesn’t have the money for the investment.
Thames Water’s bonds were unchanged on news of the equity offering.
Castle — a relatively small firm that bought Thames’ non-household water and sewerage retail business in 2016 — is looking to own a majority stake in the utility, Bloomberg previously reported. It is seeking to ultimately list Thames on the stock exchange.
The company is backed by The William Pears Group, a financing and real estate firm that would provide funding, the person said. Castle’s leadership sees the investment in Thames as a challenge to turn around the indebted utility, they added.
Castle Water declined to comment.
Thames only has enough money to last until early next year, and it needs at least £3.3 billion in equity over the next five years. But the company’s troubles run deep and efforts to curb chronic leaks and sewage spills, while tackling climate change and a growing population, may cost far more than that amount.
The equity process is unlikely to be concluded this year, as final bids can’t be submitted until after Dec. 19, when regulator Ofwat issues its final determinations on Thames’ next five-year business plan. That will set out the allowed return on equity and debt as well as how much Thames can invest and the amount by which it can raise customer bills.
Cash Runway
While trying to raise equity, Thames has also been in discussions with creditors over a restructuring plan. They reached a deal last month to release reserves that would give it a cash runway until February. But the company also needs courts to approve as much as £3 billion in emergency debt funding. A hearing is scheduled for Dec. 17.
On Monday, Thames appointed Julian Gething from AlixPartners to oversee its debt restructuring program. Even if the emergency loan is approved, Thames still needs to undergo a more holistic restructuring next year, which may require some creditors to take haircuts.
The company, which serves the London area, extended the deadline for equity bids last month, after asking potential investors to provide further details on how they would support its turnaround plan.
Other potential bidders that have been widely reported include CK Infrastructure Holdings Ltd. and KKR & Co., who together own stakes in Northumbrian Water. Thames and its adviser, Rothschild & Co., have also approached Brookfield Asset Management and Carlyle Group Inc., according to other people familiar with the process.
(Updates with additional details from third paragraph.)
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