Thames Water struggles with growing debt

Creditors want break on pollution fines

- SARAH YOUNG PAUL SANDLE

Fifteen times a year, the sheer volume of waste water entering Thames Water's Mogden sewage works in southwest London overwhelms its 90-year-old concrete tanks, forcing the utility to pump excrement into the River Thames.

Hidden by woodland, the plant illustrates the crisis at Thames, which supplies water and sewage services to 16 million customers in southern England. Loaded with debt after being privatised in 1989, the company is struggling to survive, let alone get to grips with the crumbling facilities in its care.

US private equity firm KKR this month walked away from a plan to inject £4 billion ($5.4 billion) of equity, leaving Thames' fate in the hands of senior creditors now negotiating a rescue deal with water regulator Ofwat.

The group, including investmentgrade lenders and hedge funds, has offered to invest £5 billion of new equity and debt and write off around 20% of the value of their existing debt, in return for a reset of the environmental and investment regime.

Without a deal, the British government — already struggling with constrained public finances — may have to take control of a business that caused outrage by polluting waterways while paying dividends and bonuses to its previous owners and managers.

The prospect Thames might collapse has unnerved investors and risks pushing up the cost of borrowing needed to upgrade electricity grids, transport and other UK infrastructure.

But the rescue deal would bring its own costs, financial and political.