Thames Water, the UK’s largest water utility, has received a bid from Covalis Capital that involves partnering with France’s Suez to manage a significant restructuring and prepare the company for a public stock market listing, reports The Financial Times. The bid comes as Thames Water faces mounting financial pressures, with nearly £19 billion in debt and the risk of running out of cash early next year.
Covalis proposes to break up the utility by selling off key assets, including potentially entire regions like the Thames Valley, and then listing the remaining core business. As part of the proposal, the UK government would hold a "golden share," granting it a seat on the board and strategic oversight. Covalis plans to inject £1 billion upfront and raise a further £4 billion through asset sales, refinancing, and the eventual listing, which is expected to occur in two to three years.
Suez, a major operator of water infrastructure in France with a UK workforce of 5,000, has signed an exclusive agreement to act as the operating partner on the project. The French company will not take an equity stake in Thames Water but will provide advisory and operational support to address the utility's challenges. Suez confirmed that was in an “exclusive” deal with Covalis to provide a “non-binding offer to advise and assist Thames Water”.
"At this stage, Suez’s scope of work is limited to [an] advisory mission to ensure the project’s success and address the specific challenges faced by Thames Water,” it added.
The bid comes against a backdrop of increasing concern from Thames Water’s current investors, which include major pension funds and sovereign wealth funds from China and Abu Dhabi. They have described the utility as “uninvestable” and are prepared to withdraw ownership, potentially incurring losses of up to £5 billion. Thames Water has also warned of the deteriorating condition of its infrastructure, citing risks to public safety.
The utility requires significant investment to maintain services for its 16 million customers across London and the surrounding regions. It has asked the regulator, Ofwat, to approve a 53% increase in bills by 2030 to fund operations and critical improvements, amounting to £3.25 billion by the end of the decade. Covalis believes its bid can work even with less generous concessions from Ofwat, provided agreements can be reached on penalties and investment timelines.
Other potential bidders have emerged, including Hong Kong-based CK Infrastructure Holdings, which owns Northumbrian Water, and Castle Water, co-owned by Conservative party treasurer Graham Edwards. Castle Water previously acquired the non-household division of Thames Water in 2017 and also plans to list the company on the stock market if successful.
The Covalis bid depends on Thames Water accessing a £3 billion emergency loan from senior "class-A" creditors, including Elliott Management and Silver Point. This loan, which comes with a steep interest rate of 9.75%, is aimed at providing immediate liquidity but has drawn criticism for its terms. A competing loan proposal has been put forward by lower-ranking “class-B” bondholders, though it remains unclear which offer will prevail.
Final bids are due in January, following Ofwat’s decision on whether to approve bill increases. Covalis, Castle Water, and Thames Water have declined to comment on the ongoing negotiations.
