EFRA Committee interrogates Thames on its equity raise decisions

Thames appeared again before the Environment, Food and Rural Affairs (EFRA) Select Committee last week, to comment on its equity-raising process – in particular, to explain what the committee saw as a lack of transparency in the timeliness and detail of information Thames had submitted.

The Thames representatives were questioned at length on the process for selecting KKR as preferred bidder; only offering it, and no other interested party such as CKI, the opportunity to undertake due diligence; and why, when KKR withdrew, Thames had turned immediately to the A creditor group to develop proposals with the information shared by KKR.

The committee was keen to discuss whether there had been any preferential treatment in this process. The creditor group is being tasked with providing all the short-term finance, the new equity through a debt for equity swap and further potential refinancing opportunities. The committee wanted to understand how a potential conflict of interest was to be avoided in the process.

Thames chairman Sir Adrian Montague confirmed that IPO will be the only mechanism for new shareholders to extract cash, and not the payment of dividends. £3bn of equity and £2bn of new debt would be provided as part of a £17bn package, the balance being the write down of an element of the debt, the details of which are not disclosed as yet.

Thames also confirmed that the £1,271m exceptional charge reported in its annual report was a loan by the operating company to Macquarie in 2007 to refinance its acquisition by Thames. This was no longer recoverable.

There was much discussion of the staff retention payments which had included the CEO and why the initial tranche had been paid (although not to the CEO) and then paused while the company takes more advice from Ofwat. There was also a heated discussion on the easements of Outcome Delivery Incentive penalties proposed to Ofwat to make the restructuring more palatable to the creditors and new equity owners. Chief executive Chris Weston reiterated that it was the operating improvements to Thames that would restore stakeholder trust, even though it would take ten years to recover from 20 years of underinvestment.