Monday, April 15, 2024

Dutch bank ING is key lender to Thames Water parent as cliff-edge looms | Business News

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The Dutch banking giant ING has been thrust into a pivotal role in determining the future of stricken Thames Water’s parent company amid growing expectations that lenders will agree a loan extension ahead of a repayment deadline this month.

Sky News has learnt that ING is among the lenders due to be repaid £190m by Kemble Water Finance at the end of April.

A large Chinese bank is also said to have a significant position in the loan facility, according to banking sources.

The identity of the lenders has not previously been disclosed.

If the loan is not repaid and Kemble Water Finance is in default, the company risks being forced into administration, deepening the crisis engulfing Britain’s biggest water company.

Such a move would not, however, have any direct impact on the water and sewage services provided to 15m Thames Water customer across London and south-east England.

ING declined to comment on Thursday.

Kemble has been left unable to repay the £190m loan amid a regulatory block on dividends being paid to it by Thames Water’s operating company.

Sir Adrian Montague, the City grandee who was parachuted in as the utility’s chairman last year, admitted to MPs in December that it was not in a position to meet its obligations under the loan agreement.

Industry insiders said, though, that they were cautiously optimistic that the April 30 repayment deadline would be extended by the lending syndicate.

Thames Water (Kemble) Finance said last week that it planned “to approach their lenders and noteholders and request continued support in order to provide a stable platform while they engage with all key stakeholders”.

It added that Alvarez & Marsal had been hired to advise on these discussions.

The simmering crisis at Thames Water erupted last week when Sky News exclusively revealed that its shareholders had decided not to proceed with a promised £500m equity injection into the company amid an impasse with Ofwat, the industry regulator.

The two sides have been unable to agree on a business plan which generates sufficient financial returns for the investors – which include the Universities Superannuation Scheme, China’s sovereign wealth fund and a major Canadian pension fund – leaving Thames Water facing into a financial abyss.

Thames Water’s shareholders had indicated that they were prepared to commit £3.25bn to the company in the coming years, with the first £750m due to be injected this year – including £500m by the end of March.

The company employs about 7,000 people, and serves nearly a quarter of Britain’s population.

It is, however, drowning in more than £18bn of debt, with huge interest payments required to service it.

This week, its credit rating was downgraded closer to junk status by the ratings agency Moodys.

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The utility has been seeking concessions including a 40% rise in consumers’ water bills, an easing of capital spending requirements and leniency on forthcoming regulatory penalties.

Last summer, Sky News revealed that Whitehall officials had started drawing up contingency plans for Thames Water’s collapse amid fears that it might not survive.

However, in an investment plan unveiled in October, the company said its shareholders were “stepping up to support…much needed investment, underscoring their commitment to delivering Thames’ turnaround and life’s essential service for the benefit of our customers, communities and the environment”.

“Shareholders have already invested £500 million of new funds in 2023,” it said at the time.

“In addition, they have agreed to provide a further £750m in new equity funding…subject to satisfaction of certain conditions, including the preparation of a business plan that underpins a more focused turnaround that delivers targeted performance improvements for customers, the environment and other stakeholders over the next three years and is supported by appropriate regulatory arrangements.

If Thames Water did eventually collapse, a temporary nationalisation would involve placing the company’s operating business into a special administration regime (SAR) akin to that used when the energy supplier Bulb collapsed in 2021.

That would ignite concerns in government that the triggering of a SAR could ultimately cost taxpayers billions of pounds.

The company has been beset by management turmoil, with Sarah Bentley, its chief executive for the last three years, resigning last summer.

She was replaced by Chris Weston, the former Aggreko chief.

He expressed optimism last week that a compromise deal with Ofwat could be reached this year.

The financial peril in which Thames Water finds itself has sparked calls from critics of the privatised industry to renationalise all of the UK’s major water companies.

A number of the companies have been forced to seek extra funding from their shareholders, with the state of the water industry likely to feature prominently during the general election campaign.

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