Thames Water has announced that KKR, the investor it named as its preferred partner to enter the Phase 2 diligence stage of the equity raise process, has pulled out of the bid.
Following completion of this diligence stage, KKR and the senior creditors had prepared detailed plans, including turnaround plans which had been shared with the company.
However, a statement issued to the London Stock Exchange by Thames Water at 7.00am this morning said KKR has indicated that it will not be in a position to proceed, and its preferred partner status has now lapsed.
Thames now intends to progress discussions on the senior creditors' plan with Ofwat and other stakeholders. The company will now move to talking about the alternative plan put forward by its creditors who control the majority of Thames’ £22 billion of debt.
According to a report on Sky News, the private equity firm KKR was still involved in talks with Thames Water up until Friday evening. Sky understands that one of the reasons for KKR’s withdrawal was “political risk - the ongoing negative narrative around the water industry.”
The creditors have put forward their own plan for fresh equity in the company - Sky News said "a well-developed plan" had been lodged with the regulator Ofwat which includes plans for a new chairman to take over. "They hope if that plan proceeds it could do so by mid-July it would involve the creditors taking a haircut on that debt to reduce the level of debt on the company so it is more manageable," Sky News business correspondent Paul Kelso added.
Sir Adrian Montague, Chairman of Thames Water, said:
"Whilst today's news is disappointing, we continue to believe that a sustainable recapitalisation of the Company is in the best interests of all stakeholders and continue to work with our creditors and stakeholders to achieve that goal. The Company will therefore progress discussions on the senior creditors' plan with Ofwat and other stakeholders. The Board would like to thank the senior creditors for their continuing support."
EFRA Committee Chair warns Thames “in a perilous position”
Commenting on this morning’s news that KKR has pulled out of plans to invest in Thames Water, the Chair of the EFRA Committee, Alistair Carmichael MP, said:
“In our evidence session with Thames Water bosses in May we raised serious concerns that Thames had only pursued one bidder at an early stage for its takeover bid, against the wishes of Ofwat, and highlighted the risks this could pose if KKR chose not to proceed. Unfortunately, our concerns have been realised, putting Thames in a perilous position.
“The Government has shied away from acknowledging the potential impact of this scenario on the public finances and must ensure that any takeover is in the public interest and does not line the pockets of financial institutions further to the detriment of customers and operational performance”.
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