A preferred buyer for the UK’s largest water company would “multiply” the problems of the troubled utility firm, it has been warned at Westminster.
Concerns over the selection by Thames Water of US private equity giant Kohlberg Kravis Roberts (KKR) in a bid to secure vital investment and stabilise its finances was raised by Labour peer and accountant Lord Sikka.
The heavily-indebted supplier, which has around 16 million customers, announced at the end of March that KKR would go through to a second phase of the process to secure equity investment.
The company is hoping to finalise terms of a possible deal with KKR in the second quarter, with the aim of completing in the second half of the year.
However, Thames Water said there was still “no certainty” over an agreement pointing out “certain senior creditors continue to progress in parallel alternative transaction structures to seek to recapitalise the business”.
The group’s decision to proceed with KKR came after it said it had received six approaches from firms to pump in investment and cash in return for a stake in the business.
But speaking in Parliament Lord Sikka said: “Thames Water was put on the road to ruin by private equity.
“Now its shareholders have designated KKR, another private equity group, as their preferred bidder.
“KKR’s business model is profiteering, high leverage, low investment, asset stripping and high cash extraction.
“That will inevitably multiply Thames’s problems.”
Responding, environment minister Baroness Hayman of Ulloch said: “Regarding the company choosing KKR as its preferred bidder in the ongoing equity raise process, clearly Thames Water is a commercial entity engaged in a public equity raise, and it would therefore be completely inappropriate for the Government to comment on that.
“However, I note that the company had a number of potential bidders to choose from, which indicates that a market-led solution to the financial resilience of the company is a possibility.”
Earlier, the minister told peers that the industry regulator, Ofwat, continued to engage with the company “to ensure the delivery of the financial and operational turnaround that both customers and the environment deserve”.
She added: “Any investors will be expected to show that Thames Water will meet its statutory and regulatory obligations.”
Thames Water is in at least £16 billion of debt and was left on the brink of a possible taxpayer backed rescue as it was in danger of running out of cash.
It won court approval in February to take out as much as £3 billion more in loans, in a deal designed to keep it running into 2026.
Thames Water has given few details over KKR’s proposal, except to say it included a “material” reduction of its debt and that talks were still ongoing over “other aspects of the proposal”.
KKR, which is also a minority shareholder in Northumbrian Water, is understood to have lodged a £4 billion equity bid last month in return for a majority stake.
Under its bid, KKR is believed not to be planning to break up Thames Water or sell off assets to raise funds for its bid.
Thames Water has been contacted for comment.
