Thames Water plots break-up amid debt crunch

Firm’s London operations could be split from Home Counties in one of several potential rescue scenarios

THAMES Water is exploring a radical break-up plan as the threat of nationalisation moves closer.

A carve-up of the company is among several options being studied by executives as Thames attempts to navigate a cash crunch that could precipitate its collapse. The company is buckling under the weight of an £18bn debt pile.

Under the proposals being looked at, Thames Water, which serves 16m customers, could be split into two separate smaller companies: one covering London; and another serving the Thames Valley and Home Counties regions.

It is thought that dividing up the company would make it easier for Thames’s operations to be sold on to a rival once it has been stabilised. A break-up would most likely be pursued if Thames was temporarily nationalised, city sources say.

Bulb Energy spent more than a year inside the Government’s special administration regime in 2021, before its 1.5m customers were eventually transferred to Octopus Energy.

Thames is edging closer to a potential nationalisation after its parent company missed a debt payment last week. Some believe Thames could ultimately end up being dismantled into multiple pieces.

Prof Sir Dieter Helm, who advised the government on water policy until 2020, has raised concerns that Thames Water is “too big to be effectively managed – too big in scale and too big in the multiplicity of functions”.

He said on Friday: “The special administrator should seize the opportunity to consider splitting the business up between London and the rest of the catchment, and also splitting water from sewage.”

An industry source said: “They are trying to carve it into two but when the carving knives come out, the business might end up in more pieces.”

However, there are doubts about whether competitors have the appetite to take on parts of Thames.

It is understood that Liv Garfield, the Severn Trent chief executive, rejected talk of a potential takeover when asked by Tory backbenchers at a dinner last month. Thames’s London operations may also prove difficult to place if separated from the rest of the business. One City investor said his fund would not touch Thames’s operations in the capital because of the difficulties of digging up roads and the costly disruption to people’s lives. He said: “I would not go anywhere near London.”

Fresh doubts were cast over Thames Water’s future on Friday after its parent company Kemble missed interest payments on a £400m loan. One bondholder told The Telegraph that the default was likely to trigger a formal restructuring process.

It emerged last week that two statebacked Chinese banks are likely to have a significant hand in determining the company’s future. Kemble is meant to repay a £190m loan by the end of April to a consortium of lenders including Bank of China and the Industrial and Commercial Bank of China.

Shareholders have confirmed that they are cutting off fresh funds from the business, meaning that the repayment deadline is expected to be missed.

The deepening crisis could force the Government to reluctantly step in and nationalise Thames at vast cost to the taxpayer. As much as £5bn may be needed “just to keep the lights on”, according to sources close to the company. However, ministers are reluctant to intervene with a general election looming.

Thames Water declined to comment.