Thames Water is grappling with a potential financial crisis, with auditors cautioning that its parent company could run out of funds by April 2024 unless shareholders inject more capital.
The warning, issued by PricewaterhouseCoopers (PwC) in the annual accounts of Kemble Water Holdings, underscores a looming threat to the stability of one of the key players in London’s water supply.
In its report, PwC highlighted a “material uncertainty” about the ability of Kemble Water Holdings to continue its operations as a viable entity.
The auditors expressed concern over the lack of firm arrangements to refinance a £190 million loan at one of its subsidiary companies, Kemble Water Finance Limited.
This revelation comes amid growing scrutiny over Thames Water’s debt levels and a potential investigation into whether the company misled Members of Parliament earlier this year.
In June, reports surfaced that the UK government was devising contingency plans for the potential collapse of Thames Water due to fears stemming from the company’s substantial debt.
Chair of the Environment, Food and Rural Affairs select committee, Sir Robert Goodwill, announced that the board is contemplating a renewed investigation following revelations by the Financial Times.
The report exposed that Thames Water presented a loan from its shareholders to its parent company as fresh equity, raising questions about the accuracy of information provided earlier.
In July, Alastair Cochran, finance director of Thames Water, had informed MPs that the company’s “incredibly supportive shareholders” had provided “£500 million in equity, which it had fully drawn.”
Nevertheless, as indicated in the Kemble accounts, the contribution emerged as a £515 million convertible loan, purportedly imposing an 8 per cent annual interest.
This revelation has prompted concerns from Sir Goodwill, about the accuracy of Thames Water’s previous testimony, “it leads us to question the accuracy of evidence provided to our committee by Thames Water in July.”
Moreover, it has “raised further concerns about the stability of the company’s finances and the actual ability of the company to invest the sums of money required to implement its turnaround plan”.
The company now faces the risk of breaching an interest cover covenant on a separate £200 million loan under a “severe but plausible downside scenario,” according to PWC’s disclosure in Kemble Water Holdings’ 2022-23 accounts.
A spokesperson for Thames Water Utilities Limited insisted, “We are in a robust financial position and are extremely fortunate to have such supportive shareholders.”