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Thames Water has received a bid from Covalis Capital to bring in France’s Suez to help break up the UK’s biggest water utility before taking it public.
The proposal comes ahead of the deadline for indicative bids for Thames, which is saddled with almost £19 billion and is at risk of running out of money in the new year.
British infrastructure investor Cowalis plans to sell billions of pounds of the troubled water company’s assets — potentially including entire regions such as the Thames Valley — and then publicly list the rest, according to people familiar with the bid.
The UK government will have a “golden share” in the utility, giving it a seat on the board of directors and other rights.
Cavallis will provide about 1 billion pounds upfront once the deal is agreed, the people added. The London-based investor will then raise a further £4bn from asset sales, refinancing and listings, which are expected in two to three years.
Thames needs billions of pounds to deliver water and sewerage services to its 16 million customers in London and the surrounding areas, including £3.25 billion to keep running and improve infrastructure to 2030 year.
Suez, which has contracts to manage water assets in France and employs 5,000 people in the UK, will act as the operating partner in the deal and will not own shares in Thames Water, according to the agreement signed with Covalis.
Suez confirmed it had struck an “exclusive” deal with Kowallis to provide “a non-binding offer of advice and assistance to Thames Water”.
“At this stage, the scope of Suez’s work is limited to an advisory mission to ensure the success of the project and to address the specific challenges faced by Thames Water,” it added.
Thames warned that his asset aging posed a “risk to public safety”, while its existing investors – which include pension funds Omers and USS, as well as the sovereign wealth funds of China and Abu Dhabi – declared the business “not suitable for investment”. They said they would divest the property, potentially incurring losses of £5bn.
Final proposals are due in January after regulator Ofwat agreed the extent to which water companies will be allowed to raise bills. Thames Water has asked for a 53 per cent increase in bills by 2030. Kowallis believes her bid will work under a less generous deal with Ofwat, as long as concessions can be made on fines and business investment rates, according to people close to the bid.
Other potential suitors include Hong Kong firm CK Infrastructure Holdings, which already owns Northumbrian Water, and Castle waterwhich is co-owned by Conservative Party Treasurer Graham Edwards.
Castle Water will take a controlling stake and also plans to eventually float Thames Water on the stock exchange. Castle Water, based in Scotland, completed the buyout of Thames Water’s non-domestic division in 2017 and now serves hundreds of thousands of businesses, charities and public sector groups.
The Cowalis bid relies on access to the water of the Thames A £3 billion term loan which will provide the company with instant liquidity and prevent it from running out of cash in the new year.
The water company arranged the loan with a group of its senior “class A” lenders, including US hedge funds Elliott Management and Silver Point, and it comes with an interest rate of 9.75 per cent, rewards existing management and repays in two years. – a year and a half.
A rival, cheaper credit was nominated by a group of lower-ranked “Class B” bondholders. Kovalis owns some Thames Water Class B bonds.
Covalis, Castle Water and Thames Water declined to comment.
