Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Thames Water is weighing a last-ditch rescue from a former Liberal Democrat peer working with a little-known financial services firm, which claims it can unpick the teetering utility’s complex corporate structure to better serve the environment.
Lord Rupert Redesdale, the former Liberal Democrat energy spokesman, has been helping prepare a potential bid for Thames Water from Muinín Holdings, a Mayfair-based investment firm, according to people familiar with the matter.
Redesdale is chief executive officer of The Water Retail Company, a specialist supplier of water to businesses. Redesdale, a member of the aristocratic Mitford family, joined Muinín as a director last month in preparation for a bid.
The approach comes as water regulator Ofwat is evaluating a backup £5bn rescue plan from Thames Water’s creditors, the only offer left on the table after US private equity firm KKR walked away from a bid last month.
Thames Water, which is struggling under nearly £20bn of debt, has not formally reopened its equity bidding process and has instead focused on the proposal put forward by these top-ranking creditors, which include US hedge funds Elliott Management and Silver Point Capital.
“We will consider all bids put to us,” Thames Water’s chair, Sir Adrian Montague, said in correspondence published by a parliamentary committee on Wednesday. Montague revealed that CK Infrastructure and Castle Water — which both made preliminary bids earlier this year — had also indicated a “potential willingness to re-engage”.
He added that an unknown entity called Titanium had approached Thames Water, along with “an individual connected with the water industry with an outline plan to recapitalise Thames Water by tokenisation of debt but with no or low equity injected”.
Montague was latterly referring to Muinín, although the company has decided against tokenisation, according to people familiar with the situation.
The bondholders will also hold huge sway over any bid because of the large amount of debt that needs to be restructured.
Muinín has recently met members of the creditor group and their advisers. It has also held meetings with other stakeholders, including Thames Water’s union representatives and regulators.
It plans to raise new bonds from an investment vehicle chaired by Redesdale called River Water Strategic Investments. This would raise as much as £500mn in short-term financing to stabilise the utility, with plans for Thames Water itself to later issue a further £5bn bond to bolster its infrastructure and environmental standards.
Thames Water’s existing debt would be shifted outside the regulated entity and into a new structure, where the various classes of creditors could earn a return from a future stock market listing. Muinín claims that the utility could be valued at £21bn in an IPO in three years’ time.
A person close to the bondholders said that Muinín’s proposal would require their approval to shift their debt into a “remote” vehicle, which could trigger massive writedowns, and so is “not something that would ever be deliverable and frankly would create contagion”.
Redesdale last month dropped his Liberal Democrat affiliation and shifted to becoming an independent member of the House of the Lords, in order to preserve his political freedom.
He would also step down from his executive and board role at The Water Retail Company if a bid proceeded, although he would retain a stake in the business, according to people familiar with the matter. The company itself is not a party to the potential bid.
“Our proposed bid is about building trust in the financial stability of Thames Water whilst also heavily investing in the environment,” Redesdale told the Financial Times.
“The proposed bid will not require any derogation from meeting regulator requirements or immunity from prosecution. We plan to invest in the long-term future of the company whilst understanding our obligations to the bill payers.”
The UK government said last month that it has “stepped up” preparations to plunge Thames Water into its special administration regime, while signalling it would reject demands from the creditors to exempt it from key environmental laws.
Muinín is led by chief executive Ashok Tak, a former banker at Standard Chartered, and its chair Simon Phillips, a commodities trading specialist.
Thames Water said it continues “to believe that a sustainable recapitalisation” is in everyone’s interest and it is “progressing discussions on the senior creditors’ plan with Ofwat and other stakeholders”.
Ofwat said: ‘’Our focus is on ensuring that the company takes the right steps to deliver a turnaround in its operational performance and strengthen its financial resilience to the benefit of customers.”
