Thames Water's fate hangs on Burnham as cash runs out

By Sarah Young

LONDON, July 15 (Reuters) - Thames Water's future now rests on decisions to be taken by Britain's incoming Prime Minister Andy Burnham, its CEO said on Wednesday, with the country's biggest water supplier warning it could run out of money by November unless creditors inject more cash.

The utility, which serves 16 million customers across London and southern England, has become the clearest symbol of the perceived failure of Britain's privatised water industry and has for years faced criticism over sewage pollution, a lack of investment and a debt pile that has swollen to about £20 billion ($26.77 billion).

Chief Executive Chris Weston told Reuters that a group of creditors seeking to acquire Thames Water was willing to provide additional funding to help the company avoid a cash crunch, but wanted clarity on the new government's position before committing further support.

"Creditors want to see what the new government thinks before doing anything further," CEO Chris Weston told Reuters on Wednesday.

Burnham, who will become Britain's new Prime Minister within days, has previously argued that public ownership is the best option for Thames Water, raising the prospect that the company could eventually be brought back under state control.

A senior creditor group that includes Invesco, Elliott Management and Silver Point Capital has spent months trying to secure government support to keep the company in private hands.

Without a creditor-backed rescue, Thames Water could enter the government's Special Administration Regime, a form of temporary public ownership to ensure services continue.

THE COST OF FAILURE

Critics say Thames Water's previous owners extracted dividends while allowing the company to take on too much debt, leaving it unable to invest in upgrading its ageing network.

During Macquarie's ownership from 2006 to 2017, Thames paid its investors dividends of 2.7 billion pounds while its debt tripled to almost 11 billion pounds, a period many commentators now blame for the unravelling of the company's finances.

Burnham has been a vocal critic of the sector, telling the Guardian in June that water was an industry where "the shareholders can never lose and the bill payers never win."

The current Labour government under Keir Starmer has already begun overhauling water regulation to address environmental failings and chronic under-investment, but Burnham's arrival raises questions about whether Thames Water will ultimately remain in private hands.

Any move to public ownership could prove costly for the government, potentially adding Thames Water's debt to Britain's already strained public finances. It also risks losses for investors and creditors.

Weston said the creditor rescue deal was still a viable option despite the discussions going on for a year, far longer than anyone had expected.

"It absolutely can still result in a market-led solution," he said.

"I think as long as everyone has confidence that the process is moving forward, then that liquidity will be forthcoming."

ENVIRONMENTAL PERFORMANCE UNDER SCRUTINY

Among the sticking points are the creditor group's request for leniency over the hundreds of millions of pounds of environmental fines for which Thames Water remains liable.

Publishing results on Wednesday, Thames Water said sewage pollution was down 18% in the 12 months to the end of March, while its underlying profit after tax came in at £204 million up from £13 million last year. Revenues were up 39%, driven by increased customer bills.

Debt servicing costs rose 12% to £970 million.

The recapitalisation plan being considered would write off £9.4 billion of debt, including some senior creditor debt and most junior debt, and an injection of £3.35 billion of new equity.

($1 = 0.7470 pounds)

(Reporting by Sarah Young; Editing by Muvija M and Louise Heavens)