UK's largest water company nears bankruptcy

The sole provider of piped drinking water and sewage processing to millions of people in the United Kingdom capital lunged toward insolvency on Tuesday after a major potential investor backed out of a proposed buy-in.

Thames Water had hoped to secure 4 billion pounds ($5.4 billion) of investment from United States private equity giant KKR, to guarantee its immediate future following a string of recent setbacks.

But KKR pulled out unexpectedly, leaving the UK's biggest water company teetering on the edge of bankruptcy, and facing a likely transition into an administration that will be supervised by the UK government.

Thames Water, which counts a quarter of the UK's population as its customers, said it will explore all of its options but reassured customers tap water and sewage services will continue uninterrupted despite the financial difficulties.

The company, which employs 8,000 people, is being guided by a group of major lenders that is now understood to be looking at new ways to raise equity.

Thames Water's chairman, Adrian Montague, described KKR's withdrawal as "disappointing" but said his company will "continue to believe that a sustainable recapitalization of the company is in the best interests of all stakeholders and continue to work with our creditors and stakeholders to achieve that goal".

Montague said Thames Water "will, therefore, progress discussions on the senior creditors' plan with (industry regulator) Ofwat and other stakeholders".

Thames Water was in a similar situation earlier this year but managed to secure a 3-billion-pound loan that allowed it to keep operating while it underwent restructuring.

The company's problems increased last week, when a UK court ordered it to pay 123 million pounds in fines and penalties because of environmental breaches involving sewage discharge into waterways and due to shareholder payment irregularities.

Sky News said the deal with KKR failed despite a senior company official meeting with officials from the prime minister's office on the weekend. The broadcaster said the government official reassured KKR the prime minister was supportive of the deal, but it said the company was ultimately uncomfortable with the level of operational and financial risk.

The Bloomberg news agency said Thames Water will now need to secure fresh funding by the end of this month.

Thames Water was initially government-owned but was privatized in 1989, after which it began to borrow heavily and build up debts that now total 19 billion pounds.

Critics have noted that, despite the growing debts and deteriorating infrastructure, Thames Water has paid generous dividends to its shareholders.

Some of Thames Water's bond prices slumped to record lows on Tuesday morning, with the company's 2040 bond down 4 pence in the pound, to 69 pence, and its euro-denominated April 2027 bond down 2 euro cents, to around 68 euro cents.

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