The Coffers Are Running Dry: What's Next for Thames Water?

The UK's largest water utility lost a much-needed lifeline to stay afloat. On March 28, 2024, Thames Water Utilities Limited (Thames Water), a provider of water and wastewater services to more than 16 million customers across London and South East England, announced that its shareholders will not be providing a planned GBP 500 million equity injection. Absent this funding, Thames Water's parent, Kemble Water Utilities Limited (Kemble Water), had noted in its 2023 annual report that it would be unable to meet a GBP 190 million debt maturity at the end of April, while Thames Water would only have enough liquidity to meet its day-to-day operations for up to 18 months.

Key highlights include the following:
-- Thames Water's debt is substantial and, combined with penalties for missing set environmental targets, financial performance has been battered.
-- If Kemble Water defaults on its debt, negative investor sentiment in the UK water business may raise sector funding costs.
-- We do not, at this time, believe other UK water utilities are likely to become financially distressed as their shareholders have supported turnaround plans.

“In the event Kemble Water defaults on its GBP 190 million debt obligation in April, investor sentiment in the UK water sector could turn negative and sector funding costs could rise,” said Tom Li, Senior Vice President, Energy & Natural Resources. “Furthermore, customer bills for other UK water utilities could increase materially as they have requested significant hikes to fund their proposed business plans too.”