Thames Water floating on the never-never

Call it a reality cheque: up to £3 billion of short-term finance on the sort of eye-watering terms even Ofwat can’t miss.
Rewind to July and the regulator’s “draft” determination for the next five years allowed water companies a cost of debt of 2.84 per cent. So how do the wonks square that with the price Thames Water is now paying to stay afloat: a coupon of 9.75 per cent, plus a raft of fees that pretty much doubles it? Ofwat can’t just ignore that. So won’t its “final” verdict next month on how much water companies can charge and spend involve a big climbdown? And probably not just on the debt front?
True, Thames is no average water company. It’s the industry basket case: a cash-strapped business drowning in £16 billion of debt that’s been taken hostage by its warring creditors. Its new loans are the typically pricier bridge finance sort — en route, Thames hopes, to a proper restructuring after Ofwat’s final ruling. Get the right deal and it plans to raise £3 billion or so of fresh equity, alongside debt-for-equity swaps and a haircut for at least some of its creditors.
• Thames Water creditors back £3bn funding deal
Indeed, that explains the punch-up between its bondholders as they jostle for position. As rehearsed here this week, it’s no big surprise that the A-class creditor group, speaking for £12 billion of face-value debt, trading at around 80p in the pound, look to have seen off the junior Bs with diddly-squat: £1 billion nominal, trading at less than 15p in the pound. Neither is it a shock the As have got the required 75 per cent support from their own class of creditors for their bridge finance plan. Who wouldn’t back it? It’s licensed larceny.
Still, that’s not today’s point. Even the Bs’ alternative plan came with a coupon of 8 per cent, plus a similar slug of fees. And it’s not just Thames whose debt costs are on another planet to those envisaged by Ofwat.
The other big industry laggard, Southern Water — now controlled by Macquarie, the vampire kangaroo that got Thames into this mess — has just had to tap up hedge funds for £300 million at 7.75 per cent. That told only half the story, too. Despite being on the hook to repay that sum, Southern got only £272 million, with fees on top.
Ofwat’s draft ruling set an allowed return on capital for the industry of 3.72 per cent, having also assumed a cost of equity of 4.8 per cent. Yet, for companies at the bottom of the pipe, that’ll leave them unfinanceable: a sure-fire route to a bigger mess. It’s tight for the better ones, too, given the size of the job to fix the network. Ofwat knows something has got to give.
Since its draft determination, new rules from the Environment Agency and Drinking Water Inspectorate have seen the industry lobby for an extra £7 billion of spending allowances, some of which it’ll get. As for Thames, it’s also looking for Ofwat to soft-pedal over £1.7 billion of fines and costs for past failings — perhaps by spreading them out over more than one regulatory period. Otherwise a big chunk of any new equity it raises will go straight out of the door on past penalties.
Ofwat can’t do bespoke deals for individual companies. But neither does the government want to see water companies keel over, scaring off investors for its infrastructure blitz. That leaves the discredited regulator in a tricky spot. If it backs down to suit Thames and Southern, it risks not only bailing out their bondholders, but over-rewarding sector leaders like Severn Trent: a potentially toxic political outcome.
Even so, there’s no point regulating for a world that doesn’t exist. It’s not just Thames that can’t raise debt at 2.84 per cent.
Drill, baby, drill. Who knew that could help electrify the UK renewable energy market? Still that, at least, is the view of Alistair Phillips-Davies, the SSE boss, who’s retiring after 11 successful years.
His thesis? That Donald Trump’s focus on fossil fuels and fracking will free up supply chains across Europe for a greener push into renewables. As he put it: “If America is not soaking up as much capacity, it gives us an opportunity to get ahead” — unplugging extra finance, manufacturing and skilled workers for projects over here. Britain will need as much of it as it can get, too, given he envisages a “£60 billion to £100 billion” spend this decade on transmission infrastructure.
• Ill wind for renewable energy in US to boost UK projects
So, is there now a better chance the UK really could decarbonise its power system by 2030 — a target of Sir Keir Starmer’s that most experts think unachievable? “It will be a big challenge. There’s no doubt about it,” says Phillips-Davies. Just look at the network expansion required: a rollout of transmission lines and substations over the next “five to six years” at “four times the rate of the last 10 to 20”.
Just now, it’s hard to be confident. Alongside its half-year figures, SSE said it was “disappointed” by GE Vernova’s efforts installing turbines at its Dogger Bank A wind farm — due to be completed by September but now pushed back to the second half of 2025. And, amid supply chain shortages and rising costs across the renewables sector, Phillips-Davies is in a “seller’s market”. Maybe Trump has the power to change that.
So much for a “winning combination”. That was Jitse Groen’s view of things when he wolfed down Grubhub for an impressive $7.3 billion in 2021. It’s proved as winning as a dodgy kebab: a point the Just Eat Takeaway boss has proved by finally spewing it up to some outfit called Wonder.
The price? An “enterprise value” of $650 million, crumbling after costs, to net proceeds of “up to $50 million”. Yes, the shares rose 15 per cent to £10.80. But they were nearly £100 at the height of Covid’s eating-in boom. After this dog’s dinner, it’s a wonder Groen’s still head chef.