KKR abandons Thames Water investment plan

Private equity firm KKR has pulled out of a potential capital injection into Thames Water, marking another setback for the troubled UK water company that is burdened with debt and a damaged reputation due to wastewater treatment issues.

At the end of March, Thames Water said that, following an assessment of proposals received, it had taken a further step in its plan to deliver a “sustainable recapitalisation by selecting KKR to enter the phase two diligence stage of the equity process” as preferred partner.

To survive beyond 2026, it needs £3bn (€3.5bn) of new equity and to restructure its debt.

At the time in March, Thames Water said it was focused on putting the company “on a more stable financial foundation, implementing its turnaround plan and delivering a market-led solution that is in the best interests of customers, UK taxpayers and the wider economy”.

It added that there was no certainty that an agreement would be reached and, as a result, certain senior creditors continued to progress in parallel alternative transaction structures to seek to recapitalise the business.

Around the same time, Thames Water’s investors – a group including Canadian and UK pension funds and global sovereign wealth funds – were also expected to inject capital by April 2025. However, this fell through because certain necessary conditions, including the preparation of a business plan, were not met.

In the latest update, the water company said KKR has indicated that “it will not be in a position to proceed”, and its preferred partner status has now lapsed.

Thames Water has said it now intends to progress discussions on the senior creditors’ plan with regulator Ofwat and other stakeholders.

Adrian Montague, chair of Thames Water, said: “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.

“The company will therefore progress discussions on the senior creditors’ plan with Ofwat and other stakeholders. The board would like to thank the senior creditors for their continuing support.”

Alistair Carmichael, UK member of parliament and chair of the Environment, Food and Rural Affairs Committee, said: “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, putting Thames in a perilous position.

“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.”

A year ago, analysts questioned Thames Water’s long-term viability beyond spring 2025 due to its more than £18bn in debt at the time. In addition to these financial concerns, the UK’s largest water and wastewater services company was last week hit with a record £122.7m fine from Ofwat, following two investigations into sewage spillage and breaches of dividend payment rules.

The water company has also been ordered by Ofwat to rectify identified issues in its wastewater operations.

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