A Chinese firm is reportedly a leading contender to buy Thames Water if the heavily indebted company collapses in coming weeks.
Hong Kong’s CKI, which invests in power and other utility companies in the UK, is among those lining up to acquire the water and sewerage supplier if it enters a special administration regime (SAR), according to the Times.
It has reportedly said it would be prepared to operate under tougher penalties for environmental breaches than Thames’s class A creditors, who have put together their own purchase bid.
The creditor group has said the company cannot afford to operate with an expected £1bn of fines coming down the track, which are levied by the regulator for breaches such as illegally dumping sewage. In May, Thames was hit with a record £104m fine over environmental breaches involving sewage spills.
The environment secretary, Steve Reed, has in recent months stepped up preparations for the possibility of putting Thames into SAR – effectively a form of temporary nationalisation.
On Tuesday the government confirmed it had appointed FTI Consulting to make contingency plans for a potential collapse. The appointment indicates that FTI is the first choice to act as administrator if the government enacted an SAR, although a court would ultimately approve such a step.
Thames, which supplies 16 million customers in London and south-east England, has been racing to pull together a deal to avoid financial collapse.
The government has been trying to avoid such an outcome, with the Treasury threatening that a potential £4bn bill from the SAR could be forced on to Reed’s department. This process would ensure that the taps stayed on for customers but would heap immediate costs on to the government.
Thames faced embarrassment earlier this year when its preferred bidder, KKR, pulled out of a deal at the last minute. Now, its class A creditors, who hold the bulk of the company’s senior debt, are in talks with the regulator for England and Wales, Ofwat, about a deal to inject capital into the company, which has £17.7bn of net debts and regulatory gearing of 84.4%.
CKI has previously expressed interest in buying the company and wrote to Sir Adrian Montague, the chair of Thames, when KKR pulled out earlier this summer.
The private infrastructure giant had previously been eliminated from the process despite tabling a multibillion-pound proposal, as Thames chose KKR as a preferred bidder and entered exclusive talks with the company.
Ministers are said to be reassured by CKI’s extensive experience in operating assets at scale, such as UK Power Networks, but some MPs have raised concerns about the Beijing links of the network. The former Conservative leader Iain Duncan Smith previously said on social media that a CKI acquisition “should be avoided at all costs”. The Chinese government’s sovereign wealth fund owns 9% of Thames Water.
Thames Water and CKI have been contacted for comment.
