KKR pulls out of planned Thames Water investment

(Sharecast News) - The funding crisis surrounding troubled UK water utility Thames Water deepened on Tuesday after US private equity firm KKR pulled plans to take a stake in the company, putting its future as a private entity in doubt. Thames, labouring under a debt pile of £19bn, picked KKR as a preferred partner in March, as it looked to avoid renationalisation amid a wave of criticism for polluting rivers and streams with sewage and paying massive dividends to shareholders while customers face bill increases of 40%.

KKR said it was "not in a position to proceed", according to a statement from Thames Water, which added that it would now continue talks with industry regulator Ofwat over plans alternative submitted by certain "senior" creditors.

"Whilst today's news is disappointing, we continue to believe that a sustainable recapitalisation of the Company is in the best interests of all stakeholders and continue to work with our creditors and stakeholders to achieve that goal," said chairman Adrian Montague.

MPs were told last month that at one point this year the company had about five weeks' worth of cash left before going bust. It then secured an extra £3bn loan deal, which effectively stopped it from being renationalised.

Alistair Carmichael, chair of parliament's cross-party Environment, Food and Rural Affairs Committee said Thames Water was now in a "perilous position".

"In our evidence session with Thames Water bosses in May we raised serious concerns that Thames had only pursued one bidder at an early stage for its takeover bid, against the wishes of Ofwat, and highlighted the risks this could pose if KKR chose not to proceed. Unfortunately, our concerns have been realised," he said.

"The government has shied away from acknowledging the potential impact of this scenario on the public finances and must ensure that any takeover is in the public interest and does not line the pockets of financial institutions further to the detriment of customers and operational performance."

Thames Water was dealt a further blow last week when it was fined a record £122.7m by Ofwat after breaking rules over sewage treatment and paying out dividends. The regulator insisted the money must be paid by Thames and its investors, not by customers.

Reporting by Frank Prenesti for Sharecast.com