Latest news with #Thames'
The Guardian
28-03-2025
- Business
- The Guardian
Chief finance officer of under-fire Thames Water quits £1.3m-a-year role
Thames Water's chief financial officer has quit his £1.3m-a-year job, the cash-strapped water company has announced. Alastair Cochran, who had also recently served as interim chief executive at Thames, will leave his role within days. His departure comes at a critical time for the UK's largest water company amid close scrutiny of its fragile finances. It is currently staving off insolvency after agreeing to take on billions more debt from its creditors after a court ruling earlier this month, as it seeks to secure fresh equity funding for its operations by the end of June. Industry sources said it may prove even more challenging for the company to manage its operations and due diligence requirements for potential bidders without an experienced chief financial officer in place. Thames said that Stuart Thom, director of group finance, would serve as interim CFO 'whilst longer term arrangements are put in place'. The company, which serves 16 million customers in London and the Thames Valley, would have gone into insolvency and temporary nationalisation had it not secured the fresh debt funding of £3bn, which took its total debts to more than £20bn. If it had collapsed at the end of this month it would have had just £39m left, according to court documents. Thames Water said in a statement that Cochran would step down from the board of the company as well as his executive post by this coming Monday, 31 March. It added that his replacement would be appointed 'in due course'. Cochran's pay packet faced criticism along with those of other senior water executives, amid public anger over the state of England's water ways. His basic salary in 2024 was £450,000 plus a bonus of £446,000 and other benefits, which took his total annual earnings to £1.3m. Sir Adrian Montague, Thames' chair said Cochran had 'led the work to put TWUL's [Thames Water Utility Ltd] finances on a more stable footing, overseeing the first stages of our equity raise and financial restructuring, laying the foundations for the wholesale recapitalisation of the business'. Cochran joined Thames in 2021, and served as co-interim chief executive between June 2023 and January 2024 before resuming the role of chief financial officer. Before joining the water company he was chief financial officer of the oil multinational Petrofac. Last year, the Guardian reported internal criticisms of Cochran's time at Thames, which included allegations by current and former staff that he had slowed down time-critical decisions for the water company's operations in areas such as ordering chemicals and hiring decisions. The company pushed back on these allegations, saying that Cochran only formally signed off on sums over £10m. Sign up to Business Today Get set for the working day – we'll point you to all the business news and analysis you need every morning after newsletter promotion Thames is reviewing six approaches from potential suitors including CK Infrastructure Holdings, Castle Water, and the private equity firm KKR. The majority of bidders are seeking reassurance that they would be able to avoid or manage future fines and punishments for poor performance. The Guardian also revealed earlier this month that Thames had asked the water regulator, Ofwat, to delay referring its decision on what bill rises the company was allowed to impose on consumers to the Competition and Markets Authority. It also requested special treatment on fines and other regulatory oversight. Ofwat agreed to Thames's request to delay the referral after concerns emerged that waiting for the CMA decision could add months of uncertainty for investors trying to get a clear sense of Thames's financial position.
Reuters
03-03-2025
- Business
- Reuters
Thames fix is acid test for UK, and privatisation
LONDON, Feb 27 (Reuters Breakingviews) - Thames Water is in purgatory. Britain's biggest water utility recently averted collapse via an expensive 3 billion pound loan from existing creditors, but it still needs to raise equity to cut debt, restore access to credit markets and fund a 20 billion pound investment programme. If interested parties like U.S. buyout group KKR (KKR.N), opens new tab can rescue it and make a decent return, it would boost the UK's flagging appeal as a destination for foreign direct investment and reinvigorate the global case for privatising public assets. That's a big if, though. The rescue is a pivotal moment for the UK water sector, which was privatised in the 1980s. Yet Thames' troubles spread far beyond Britain. Top-tier providers of foreign direct investment like Abu Dhabi Investment Authority and Canada's Ontario Municipal Employees Retirement System have already had to write down the value of their Thames equity stakes. If Prime Minister Keir Starmer ends up having to nationalise the utility it would send an even stronger signal to North American and Australian pension money as well as Gulf wealth funds to invest elsewhere. Thames' woes stem from a toxic combination of ageing Victorian sewers, London's growing population and fines for poor performance, on top of an already creaking balance sheet. Under the UK system companies are allowed to make fixed returns set by watchdog Ofwat. Critics, including rating firm Moody's and Thames itself, argue the current five-year price regime does not reward investors adequately, opens new tab for the risks they are taking. The first question is how much money Thames needs. Its own business plan envisaged 3 billion pounds in fresh equity, but that was before Ofwat's ruling on what rates the company can charge. That left a 4 billion pound gap, opens new tab between the spending Thames would like to do, and what it can charge for. Meanwhile, the group may need more money to cover further performance penalties, which Moody's reckons could total around 100 million pounds a year. And Thames needs to cut debt. At around 85% of regulatory capital value (RCV), a utility metric determined by the watchdog, borrowing is far above the 55% level preferred by the regulator. David Burlison, a Jefferies banker advising Thames' senior-ranking creditors, recently estimated a total capital hole of up to 10 billion pounds. For what it's worth, KKR has made a non-binding offer, opens new tab to pump in an initial 4 billion pounds, as has utility Castle Water, backed by the Pears family. A bid, opens new tab by Hong Kong's CK Infrastructure has floated a figure of 7 billion pounds. Unfortunately, calculating Thames' equity is complex. Its RCV is only 20 billion pounds and it has around 17 billion pounds of debt after factoring in new funding, according to Breakingviews calculations. That implies a theoretical equity value of not much more than 3 billion pounds assuming a valuation in line with its RCV, which is roughly where utilities that can cover their cost of equity trade. But a new investor would have another option: they could take a chunk out of bondholders. That would both create value in Thames' equity by reducing its liabilities, and lower the cash requirement. That raises a second question – how big the creditor hit needs to be. If Thames' debt was slashed by, say, 40%, it would fall to around 50% of RCV. That would be lower than most peers, and a prudent level given Thames' challenges. Yet bondholders wouldn't swallow such a move easily. After all, that kind of loss might come close to what could happen if Thames were placed in administration by the government. The alternative is to give bondholders less of a scalping. The numbers could work. Assume a new owner persuades senior bondholders to take a 25% loss, which according to Breakingviews calculations is enough to bring debt down to around 60% of RCV. That would leave Thames more vulnerable and some creditors might carp, but it would be in line with where the debt is trading. Next, assume that KKR or a rival bidder invests 4 billion pounds upfront, and a further 1 billion pounds annually over the next four years. Finally, assume that Thames turns itself around sufficiently to cover its cost of equity of around 7%, and is valued in line with its estimated 33 billion pound RCV in 2030. Incorporating debt around 60% of its RCV, that would imply an equity value of around 13 billion pounds, equivalent to an internal rate of return of 14% over the next five years, according to Breakingviews' calculations. KKR and other investors would likely see that as adequate. That's especially the case given scope for the return to rise. Thames is currently petitioning the UK competition watchdog to loosen Ofwat's pricing regime for the next five years, which could mean higher returns and a lower funding gap. Equally, the government could be so keen to see a deal and avoid a messy nationalisation that it may pressure the watchdog not to fine Thames if it misses targets. Yet there are plenty of risks. The new owner could get stuck in battles with bondholders, who have threatened to backstop Thames themselves. Then it might have to surrender a big slice of the equity to secure a restructuring. Thames' turnaround may take much longer or cost more money than expected. In recent years, the company's return on equity has on average been negative. A successful deal would partially validate the UK's privatisation model, which relies on companies being able to fail, without requiring government funds or dragging down peers. It would make privatisation less of a dirty word for other politicians that may contemplate selling state assets – like new German Chancellor Friedrich Merz. Still, a big creditor hit may spook other utility lenders. And a messy deal that doesn't stop the rot could leave it vulnerable and in the crosshairs of politicians. UK water companies will raise bills by over a third, opens new tab over the next five years, delivering much needed investment but potentially angering voters. Thames Water may yield its successful bidder a decent return, but the risks are real. Follow @Unmack1, opens new tab on X CONTEXT NEWS Thames Water on February 18 secured court approval for a 3 billion pound ($3.8 billion) debt lifeline, warding off the collapse and state rescue of the UK's biggest water supplier. The government had been on standby to put Thames Water into special administration, a form of temporary nationalisation to keep it operating if it goes bust. The lifeline, provided by senior creditors, will give Thames 1.5 billion pounds plus a possible further 1.5 billion pounds, extending its funding until May 2026. A group of lower-ranked creditors opposed the deal, calling its 9.75% interest rate too costly. Judge Thomas Leech, however, said in his written ruling that the most likely alternative to the plan was Thames being put into special administration, rather than the successful implementation of the Class B creditors' rival proposal. The rescue package was provided by a group of Thames Water's senior creditors including Abrdn, Apollo Global Management, Elliott Investment Management, Invesco, M&G and PIMCO. For more insights like these, click here, opens new tab to try Breakingviews for free.
