In the last few hours, there have been reports suggesting that Thames Water is facing doubts about its ability to manage its £14 billion debt.
This has allegedly led to contingency plans being developed to address the situation.
Business Secretary Kemi Badenoch has expressed significant concerns over the potential collapse of Thames Water and emphasised the government’s responsibility to ensure the company’s survival.
On the other hand, Thames Water has stated that it maintains a strong financial position.
The water supplier said as of 31st March 2023, the company held £4.4 billion in cash and committed funding, indicating good liquidity.
In an interview with Channel 4, Darren Jones, who chairs the Business and Trade Select Committee, said: “If Thames Water goes bust the government going to take it over, but that’s an outrageous outcome because Thames Water should never have been in this position in the first place had there been adequate regulation of their conducts.
“Where companies are too important to fail and taxpayers are asked to underwrite them with a blank check there should be much stronger regulation about the way in which senior executives and shareholders run those businesses which has clearly not happened here.”
Joanna Ford, Restructuring and Insolvency Partner at Cripps, said: “Although Thames Water is seeking additional funding from its shareholders, I can’t imagine that this will be a quick or easy process, as it is owned by a consortium of pension funds and sovereign wealth funds, who I understand are sceptical about providing further support having already provided new funding of £500 million as recently as March this year.
“The conundrum for investors, though, is that if they don’t provide more funding and Thames Water then goes into administration, they will have lost everything.
“A special administration regime exists for companies that are too important to fail, such as utility companies, in order to ensure that customers receive continuity of supply and to reduce the risk of financial failure spreading across the market. This was used successfully with the collapse of energy supplier Bulb in 2021, which was run by professional administrators at Teneo until it was sold to Octopus Energy in October 2022.
“As with any company insolvency, it is mainly the shareholders that lose out, as they sit at the bottom of the pile when it comes to repayment. Secured bank lending would be repaid first, before other creditors such as HMRC, employees, and trade creditors.
“Insolvent means that a company does not have enough money to repay all its creditors, and so if Thames Water was to go into administration then not all creditors would be repaid in full, and so they would also lose out to some extent – how much will depend on what there is left in the pot to go round.”