Hong Kong giant CKI demands to rejoin auction of stricken Thames Water

Sky News

a day ago

The Hong Kong-based investor CK Infrastructure Holdings (CKI) is demanding to be readmitted to the auction of ailing Thames Water, days after its preferred bidder walked away and pushed it closer to the abyss of nationalisation.
Sky News can exclusively reveal that CKI wrote to Sir Adrian Montague, the chairman of Thames Water, on Monday, seeking access to due diligence materials and insisting that it could be ready to table a formal bid to take control of the company within six weeks.
In the letter, which was signed by Andy Hunter, CKI's deputy managing director, the owner of Northumbrian Water said it was keen to rejoin the Thames Water board's equity-raise process, roughly three months after submitting a multibillion pound proposal to take control.
Britain's biggest water utility has been plunged back into crisis by a decision last week by KKR, the private equity firm, to abandon its status as preferred bidder.
Sky News revealed that the decision was made after talks between KKR and Downing Street officials amid concerns about the political risk of bailing out a company which supplies essential services to more than 15m people.
Since then, Thames Water's biggest group of creditors - accounting for approximately £13bn of its vast debt-pile - has submitted what it described as a £17bn proposal to recapitalise the company.
This, the bondholders said, would comprise £3bn of new equity and more than £2bn of debt funding.
Existing shareholders would be completely wiped out, while there would also be several billion pounds of debt writedowns aimed at restoring financial resilience and improving services,
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The bondholders are reported to seeking immunity from prosecution for Thames Water's environmental failings, while they also want an agreement that Ofwat, the industry regulator, would drastically reduce the level of financial penalties facing the company.
Last month, Thames Water was fined a record £123m over sewage leaks and the payment of dividends, with Ofwat lambasting the company over its performance and governance.
Sir Adrian has run into yet more difficulties in recent days, with MPs on a key Commons select committee questioning evidence he had given to it and calling on Thames Water to claw back hundreds of thousands of pounds paid to a number of senior executives as retention payments in recent months.
Under new laws, Thames Water is among half a dozen water companies which have been barred from paying bonuses this year because of their poor environmental records.
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CKI owns large swathes of British infrastructure, including Northumbrian Water, Northern Gas Networks, UK Power Networks and Eversholt, the rolling-stock leasing company which has been put up for sale.
Its expertise in running major companies of the scale of Thames Water would resolve a headache for ministers anxious to avoid placing the group into a special administration regime (SAR), which would incur a multibillion pound bill for taxpayers.
Ministers are also said to be wary about the lack of experience in the bondholder group at running a major water company, although Sky News revealed last week that the business veteran Mike McTighe had been lined up to spearhead their interest.
"This is a proven operator versus a group of financial engineers," said one person close to CKI.
However, a takeover of Thames Water by CKI could yet face stiff political opposition.
In April, a cross-party group of politicians wrote to Pat McFadden, the Cabinet Office minister, expressing concerns about CKI's links to Beijing.
Iain Duncan Smith, the former Conservative Party leader and a strident critic of Chinese investment in the UK, posted on social media last week that a CKI takeover of Thames Water "should be avoided at all costs".
CKI had already expressed frustration at being eliminated from the Thames Water process in April, with The Times reporting that it had written to Ofwat to express its dismay.
In recent weeks, the government has described Thames Water as "stable", but said it was ready to step in and take control of the company if required to.
The company effectively faces a deadline of late July to finalise a rescue deal because of a referral of its five-year regulatory settlement to the Competition and Markets Authority.