US private equity giant KKR ready to inject £4bn into ailing Thames Water
Private equity behemoth KKR is prepared to control ailing utility Thames Water for a decade to repair the disgraced firm's fortunes and reputation.
It is also understood that, as part of a rescue package being put together by Thames Water chairman Adrian Montague, New York-based KKR is preparing to pump £4 billion in equity and loans into the business.
Britain's largest water company, which supplies 25 per cent of the country's water, is regarded as a national disgrace. It has an appalling pollution record and only avoided financial collapse by taking on a £3 billion emergency loan.
KKR aims to inject Thames Water into an infrastructure fund, ending years of complex ownership that has seen billions of pounds flow overseas in dividends and interest payments.
Thames Water's top brass found themselves in the headlines last week after it was revealed that executives could receive large bonuses under the rescue plan. But the group promised to 'pause' these payouts after the intervention of the Government following heated Parliamentary hearings.
KKR has not been directly involved in the bonus row. But it is thought to believe that if executives are in charge of £20 billion of capital expenditure – and they make it 5 per cent more efficient – that's £1 billion, of which a bonus of £500,000 is a tiny proportion.
Thames Water is also competing with other utilities such as National Grid and Centrica, owner of British Gas, to attract the best managers and thus needs to provide pay awards of a similar level.
The private equity group hopes that by working around the clock with Thames Water, its debt holders and industry regulator Ofwat, it can put together a credible rescue package by the end of July.
Most of the negotiations with the authorities have been conducted with Ofwat, which has agreed to a huge 30 per cent price increase in household bills, seen as necessary to meet investment targets. But stewardship of Thames Water is thought to be a bid by KKR to repair its own reputation too.
The private equity group recognises it has an image problem dating back to its role in the infamous 1988 takeover of US food and tobacco group RJR Nabisco.
Its goal at Thames Water is to improve service levels, its environmental impact and create sustainable cashflows. It also intends to eventually return the firm to the UK stock market.
The private equity group is aiming to reduce borrowing at Thames and is pledging not to pay any dividends until the finances are repaired. Thames Water's borrowings stand at 88 per cent of its assets, which Ofwat considers unsustainably high.
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