(Bloomberg) -- Thames Water Utilities Ltd. will soon be put into special measures by the UK regulator as the beleaguered firm races to find new investors before running out of money.
Ofwat announced remedial actions Wednesday meant to restore the credit rating of the UK’s biggest water and sewage company after it was cut to junk last month — a downgrade that breaches its operating license.
Thames faces a tight deadline. It needs to find at least £2.5 billion in new equity by May 2025 to avoid going broke. That’s proving to be a tough sell, and investors also are waiting to see if Thames can persuade Ofwat to make any concessions before a December ruling on its business plan.
Splitting the company into two or more units may help make it more appealing.
Ofwat wants to appoint a trustee with access to Thames’ accounts who would report back monthly on its performance against turnaround targets. Thames also would step up fundraising efforts and make new non-executive director board appointments.
Thames also agreed to improve its plans for plugging chronic leaks and sewage spills.
A consultation on the commitments is open for just over a week, until Aug. 16. If approved, the measures would be brought in as quickly as possible, according to a person familiar with the plans.
“We will continue to monitor progress very closely and will not hesitate to take any further action if necessary,” Ofwat Chief Executive Officer David Black said in a statement.
The measures mean Ofwat is accelerating the so-called Turnaround Oversight Regime originally supposed to start in 2025, as reported by Bloomberg last week.
Thames agreed to start sooner as a way to pre-empt any enforcement action from Ofwat after being downgraded to junk by Moody’s Ratings and S&P. All water companies are required to maintain an investment-grade credit score from two ratings firms.
An infringement could bring a fine equivalent to as much as 10% of revenue.
If Thames fails to find new equity, it may be forced into temporary nationalization. But Environment Secretary Steve Reed has said he doesn’t want to do that because Thames needs to sort out its own mess.
“In its current structure we do not believe that Thames represents an attractive proposition for new equity,” RBC Europe said in an emailed note Wednesday.
The turmoil at the cash-strapped utility has dragged on for more than a year after soaring interest rates piled pressure on its finances. The crisis came to a head in March, when shareholders turned their back on the company, declaring its business plan “uninvestible.”
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Thames also faces a series of other fines that could eat into its rapidly eroding cash pile. On Tuesday, Ofwat announced a £104 million fine for sewage spills, which Thames is also seeking to avoid through a separate remediation plan. The company is also facing fines for failing to produce a satisfactory business plan, and for paying dividends to shareholders last year.
(Updates to clarify that no fine has yet been issued for license breach.)
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