Thames Water: UK's largest water firm 'has weeks' to agree turnaround strategy with Ofwat to avoid collapse after racking up £14.7bn debt pile

Debt-ridden Thames Water has just weeks to convince the regulator Ofwat that it has a survival plan to avoid collapsing. The Guardian has revealed that the water company must move quickly to strike a deal with the watchdog in order to stay afloat. 

The UK’s largest water firm has until 23 May to present a new turnaround strategy, the Guardian reports. Ofwat will hold its final board meeting on that date before it issues a verdict on how much water companies will be allowed to charge consumers.

Thames Water’s lenders are reportedly spending millions of pounds a week to work out a turnaround plan to repay the firm’s massive debts. As part of urgent restructuring talks, the firm’s executives are considering breaking Thames up into two smaller companies covering London and, separately, the Thames Valley and Home Counties regions, according to The Telegraph. It is reportedly thought that dividing up the water firm would make it easier to sell its operations to a rival once the company has been stabilised. 

The firm’s parent company, Kemble, defaulted on its debts and shareholders have also refused to provide new funding. This is causing fears to mount that taxpayers could be left to foot the bill if the government has to bail out the company.

Thames Water has racked up a debt pile worth at least £14.7bn. Thames has said previously that it has £2.4bn of liquidity available and can still meet its commitments until at least May 2025. However, high borrowing costs and fines from Ofwat risk shrinking this cash pile.

According to The Daily Mail, Rothschild, the investment bank, has been hired to advise Thames Water on how to deliver its reform plan, while consultancy firm Teneo has been appointed as 'administrator in waiting' to take over in the event of a collapse.

Ofwat previously refused the company’s demands for a 40% increase in bills. The regulator reviews water companies’ business plans and holds a price review in order to set the amount the utility firms can raise their bills over the next five-year period.

Despite its rejection of Thames’s plan, it is understood that bills are still expected to rise by as much as 35%, on average, over the next five years. Thames Water is running out of time because the regulator must issue its so-called draft determination on bill increases for each regional monopoly company in June. 

If Thames Water and Ofwat cannot agree on a new financial plan for how to run the company by then, the chances of nationalisation are likely. An Ofwat spokesperson said: “We do not comment on speculation. Ofwat is continuing to work on draft determinations that will be published in June.

“We will continue to monitor Thames Water as it seeks to turn around its performance for customers and the environment.” Thames Water declined to comment.