Thames Water creditors ‘will bid for company even if it is nationalised’

Thames Water’s creditors are willing to pursue their bid for the debt-laden company even if the probable next prime minister, Andy Burnham, brings it into temporary nationalisation.

The group of 100 institutional investors, which hold about £14bn of Thames’s senior debt, are still discussing a £10bn rescue proposal for the struggling company with officials from the regulator Ofwat, and they have held meetings in recent days.

Emma Reynolds, the environment secretary, objected to the proposal in mid-June because it would place an “undue burden” on consumers, pushing the Britain’s biggest water company closer towards a form of temporary nationalisation called a special administration regime (SAR).

Creditors would want to buy Thames out of temporary nationalisation as they regard it as a process but not a solution, sources said, in news first reported by the Financial Times.

Burnham has called for “greater public control” over Thames and told the Guardian this could mean nationalisation.

The future of Thames, which serves 16 million customers in London and the Thames Valley and is buckling under £17.6bn of debt it has run up in the decades since privatisation, will be one of the most pressing issues in his in-tray when Burnham enters Downing Street, expected to be within the next two weeks.

The lenders, who include the US hedge fund Elliott Investment Management, which is run by the billionaire Trump donor and hedge funder Paul Singer, along with Apollo Global Management, Silver Point Capital, BlackRock and M&G, have been trying to take ownership of Thames without a SAR after Thames’s bosses failed to sell the utility to the US investment group KKR last year.

Thames has been trying to stave off financial collapse for nearly three years and could run out of money in October.

The creditor group, London & Valley Water, has argued that an SAR would require multiple billions of pounds of taxpayer money and no one knows how long it would last, and that it would create further uncertainty for the company’s 8,000 workers and its supply chain.

The creditors’ rescue proposal would inject £3.35bn of new equity into the water company and provide £3.25bn of fresh debt, while Thames would be spared fines for pollution of rivers and the sea for four years.

Other potential bidders for Thames have called for the company to be taken into an SAR, including the Hong Kong-based CK Infrastructure Holdings, the majority owner of Northumbrian Water. Castle Water, which runs billing services for Thames Water’s business customers, has also signalled it wants to bid.

Four years ago, the government recovered nearly the entire cost of temporarily nationalising the energy provider Bulb after agreeing to sell it to its rival Octopus for £3bn.

Under an SAR, Thames would be run by an independent insolvency expert on behalf of taxpayers to maintain services before finding a buyer. Its debt and interest payments could be temporarily frozen. However, the government would have a duty to seek maximum value for creditors in an SAR.

A Thames Water spokesperson said: “We continue to work with all parties to reach an agreement that supports Thames Water’s long-term financial stability and ensures the uninterrupted delivery of our biggest infrastructure upgrade in 150 years while continuing to meet the needs of our 16 million customers.”

The creditor group declined to comment. The government and Ofwat have been contacted for comment.