Thames Water’s main lenders are offering the government a “golden share” and greater local authority involvement in a last-ditch attempt to stop the troubled utility from being nationalised by the new prime minister, Andy Burnham.
The bondholders, organised as the London & Valley Water (L&VW) consortium, are also preparing a legal challenge should the Burnham government take the firm into public hands, according to the BBC. The offer comes after the government rejected a previous £10bn rescue proposal in June, with then-environment secretary Emma Reynolds saying it did not do enough for consumers or the environment.
“Thames Water lenders offer golden share to head off nationalisation by new PM Andy Burnham.”
A golden share would give ministers veto powers over major decisions such as mergers and acquisitions – a tool used in other companies of national significance like Royal Mail and Rolls Royce. The lenders are also proposing “supervisory structures” to give local authorities more influence, similar to the relationship between United Utilities and Greater Manchester when Burnham was the city’s mayor.
Burnham, in his first speech as prime minister on Monday, said he wanted greater public control of “life’s essentials”. During the Makerfield byelection campaign he described public ownership as “what should be done” at Thames, without clarifying whether he meant full permanent nationalisation or a special administration regime (SAR) that could allow a return to the private sector.
The previous deal, which the lenders have now sweetened with “hundreds of millions” in new money, included a 30% haircut on debt, £3.35bn of new equity, £3.25bn of fresh debt and £700m to settle expected environmental penalties. Those numbers may move: with Thames’ senior debt trading at about 62p in the pound, credit analysts at Moody’s now expect a loss for senior bondholders of 35% to 60%, and a haircut of up to 50% may be needed to accelerate infrastructure spending.
Sources close to the creditors say that in the event of full nationalisation they would seek payment in full of the outstanding debts, potentially leaving the government with a multi-billion-pound bill – as has happened in previous cases.
The Guardian’s Nils Pratley notes that the bondholders’ sudden flexibility reveals the weakness of the previous government’s approach under Keir Starmer. “The Treasury never hid its preference for a ‘market-based solution’,” he writes. “The result was a series of weak proposals from the bondholders – starting a year ago with an inadequate 20% haircut for them – that didn’t match the depth of the financial crisis. Now, at last, we may be cutting to the chase. We should have arrived at this point at least 18 months ago.”
A government spokesperson said Thames Water “remains financially stable, but we stand ready for all eventualities, including applying for a Special Administration Regime if that were to become necessary.” The spokesperson added: “The government will always act in the national interest on these issues.”
Any new proposals must be reviewed by the regulator Ofwat. Meanwhile, the lenders insist their revised plan is “by far the fastest and most reliable route” to solving Thames Water’s problems. But with Burnham yet to signal a preferred path – and both full nationalisation or SAR threatening a prolonged legal dispute – the choice between a negotiated settlement and public control remains unresolved.