Thames Water is facing renewed uncertainty after US private equity firm KKR withdrew its takeover bid, leaving creditors scrambling to secure billions in funding. The collapse of the deal brings the prospect of temporary nationalisation closer for the debt-laden utility, which serves 15 million customers in London and the Thames Valley.
KKR pulled out on Tuesday, shocking Thames Water and its creditors, after 10 weeks of due diligence revealed the poor state of the utility's assets. The firm had deployed 15 members of its European infrastructure team and up to 200 advisers, but balked at the complexity of the turnaround, which requires £20bn in investment over five years to fix leaking pipes and sewage treatment works.
The withdrawal leaves creditors, some of whom bought Thames's debt at a discount, responsible for funding a 15-year recovery plan. Thames Water has already had a close shave with bankruptcy this year, secured £3bn in emergency investment via a high court battle, and faced public anger over sewage spills.
KKR's bid had hinged on leniency from regulators Ofwat and the Environment Agency on fines and penalties, but Ofwat recently imposed £123m in new penalties for environmental breaches. A person close to the talks said KKR also worried about political risks under the new Labour government, which has vowed to crack down on poor behaviour in the water sector.
A government spokesperson said it 'makes no apology for tackling poor behaviour' but welcomed investors willing to work on rebuilding the sector. The government is hoping to avoid direct involvement, but nationalisation remains a possibility if no rescue plan emerges.
