3 days ago
Labour can't let this Thames Water torture run on
There'd be no politics without juicy questions. So, how about this one: would it be better for Sir Keir Starmer & co to plunge Thames Water into the special administration regime (Sar) now? Or postpone that treat until just before the next election?
Maybe that sounds hypothetical. But it's still the sort of puzzler that should be bubbling up in ministers' minds, despite the rescue deal being advanced by Thames's senior creditors. Yes, the A-class crew with £13 billion of the £16 billion senior debt are trying to put together a takeover that avoids all need for a Sar. And they say they are making progress over a fix for a business drowning in £17.7 billion of net debts and regulatory gearing of 84.4 per cent, rather more than the 'notional' 60 per cent favoured by Ofwat, the hapless regulator being axed after the Cunliffe review.
Yet, even if a deal gets done, it'll only work if it's watertight: brimful of the sorts of pledges Daniel Kretinsky was forced into with his bid for Royal Mail. Ministers can't allow a creditor-friendly fudge that melts just as voters go to the polls. And that risk has only gone up since rival bidder KKR threw in the towel in June. It has left the creditors' bid the only game in town: 'a beauty contest judged by the ugliest contestant', as one observer put it.
True, any deal outside of a Sar would require approval from 75 per cent of Thames's A-class creditors. Yet, two things would give you more faith in a non-Sar solution. First, if there was tension in the bid process overseen by the Thames chairman Sir Adrian Montague. And, second, if two of the key players driving the creditors' bid weren't Elliott and Silver Point: two hedge funds that bought in late to Thames's distressed debt and want a quick turn. Neither look ideal owners for a business that its present boss Chris Weston says 'will take at least a decade' to fix.
Thames was duffed up last month by MPs on the environment committee, with its chairman, Alistair Carmichael, pointing to a lack of 'transparency' over the bid process and telling Montague: 'It is certainly not clear to me just in whose interests you are all working.'
Montague defended himself, saying that KKR's bid was 'by far the strongest'; that it had demanded 'exclusivity', despite Ofwat's reservations over having one bidder; and that, since KKR pulled out, the creditors were 'making reasonable progress with their proposition'.
Yet, there's plenty in this process that's odd. Despite granting KKR exclusivity, Thames also agreed to pay for all its due diligence, not typical in bids. Once it had walked out, too, Thames gave that research and a 290-page KKR report to the creditors. What happened next? Well, one of the losing bidders — CKI Infrastructure — is said to have told Montague that with KKR out of the frame it wanted back in for its own offer. It also asked to see KKR's due diligence. Montague's response? To tell CKI to talk to the creditors, with him admitting to MPs that 'we facilitated meetings'.
The creditors span 100-plus institutions but a committee of 15 is leading their bid. They include the two hedge funds, plus Apollo, Pimco, Royal Bank of Canada and Assured Guaranty. CKI, which owns UK gas and electricity distribution networks as well as Northumbrian Water, is said to have met the two hedge funds, Apollo and Pimco. Their response to its plan to put in a bid? Well, apparently, to tell CKI to get lost, only in far fruitier language.
The creditors deny that they dropped any F-bombs. Or that their key motivation with any bid is keeping the haircut on their debt to the minimum, even if they'd balk at the sort of waterboarding CKI is believed to think necessary of up to 50 per cent. The creditors would also say that CKI refused to share its plan; that it didn't want them co-investing with fresh equity; and that they'd worked jointly on some KKR due diligence anyway.
There's a chance, too, that the creditors deliver a viable bid that the government and new regulatory regime approves. But their sighting shot looked a try-on: £3 billion of fresh equity and £2.25 billion of new debt, with a mere £3.2 billion haircut on their loans and all lower-ranking debt zeroed. Plus, being let off £1 billion of fines for past efforts on the pollution front. Whatever Cunliffe's calls for pragmatism to avoid a 'doom loop', there is an obvious riposte to that: why not cut another £1 billion off their debt?
The creditors would also say that, with all debt holders given a pro-rata chance to participate in new equity, no hedge fund would hold a stake as big as 10 per cent. And a new board, under chairman Mike McTighe, would ensure orderly sell-downs of equity. The creditors also hope for a deal by the end of next month.
The Treasury is keen to avoid a Sar, too, given that it would add to Rachel Reeves's problems. But the regime exists for a reason. Better to take the pain now and impose a buzzcut on the squealing creditors than let them string everyone along, not least Thames's 16 million customers, with a self-serving deal.
Cut the debt via a Sar and there are credible long-term owners waiting in the wings, not least CKI. The government does have a choice. It needs to tell the creditors that if there's no workable deal by October, it's pulling the plug. Better a Sar than endless water torture.
Orsted becalmed
Life had stopped being a breeze for Orsted long before Donald Trump took power. But no question he's made things worse: he's the key reason for a $9.4 billion rights issue that sent its shares down 30 per cent. Halting construction of Equinor's Empire Wind project off New York spooked investors in Orsted's Sunrise Wind scheme, leaving it unable to sell down its stake. Trump has made his dislike of 'big, ugly windmills' clear, claiming: 'They kill the birds, they kill the whales.' There's no evidence for his latter claim. But Sunrise's do seem to be killing off Orsted investors.
