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Hong Kong’s CK Infrastructure has made a preliminary £7bn bid to take a majority stake in Thames Water, while indicating that it would require the troubled utility’s bondholders to take significant haircuts.
CKI, part of the CK Hutchison group, submitted the non-binding offer to take over Thames Water earlier this month, according to two people familiar with the matter.
While CKI indicated it would be willing to inject £7bn of equity to fix the utility’s broken balance sheet, its interest is contingent on bondholders in Thames Water’s near-£20bn debt pile agreeing to take significant writedowns, the people added.
The details of CKI’s preliminary bid underscore the scale of the balance sheet overhaul Thames Water requires to attract new funding from major infrastructure investors.
CKI’s insistence on creditors taking losses as part of its bid could put it on a collision course with Thames Water’s senior bondholders, which include US hedge fund Elliott Management. These so-called class A lenders have indicated that they will resist any deal that inflicts substantial losses upon them and are preparing their own bid for the utility.
CK Hutchison’s majority ownership of Northumbrian Water could also prove a sticking point. The group is not keen to dispose of its 75 per cent stake in the other regional water monopoly, the people said, which may cause issues with competition regulators.
CKI already has numerous infrastructure investments in the UK, including stakes in electricity distributor UK Power Networks and gas distributor Northern Gas Networks. CKI last year added a secondary public listing in London to its existing trading venue of Hong Kong.
Thames Water received several non-binding bids earlier this month, including a rival £4bn bid from US private equity firm KKR. The UK’s largest water utility is looking to raise billions of pounds in equity while negotiating a debt restructuring with its lenders in a bid to avoid insolvency.
Thames Water and its adviser Rothschild & Co intend to select credible parties that can progress to the next stage of bidding by the end of the month.
Thames Water declined to comment. A representative for CKI did not immediately respond to a request for comment.
Thames Water this week won High Court approval to borrow up to £3bn in high-cost debt from its top-ranking class A lenders, which the beleaguered utility has said it needs to avoid running out of cash on March 24.
Thames Water still has to overcome an appeal by lower-ranking bondholders and environmental campaigners, however. This is now slated to be heard in the Court of Appeal in the week beginning March 10.
Thames Water was heavily criticised in a Court of Appeal hearing on Friday for trying to use its liquidity issues to expedite this appeal to an earlier date.
Sir Geoffrey Vos, the Master of the Rolls, described Thames Water’s request as “frankly ridiculous”.
“The court is not here to be bounced into hearings by parties who don’t arrange their affairs in proper order,” Vos said.
Vos also said that Thames Water’s proposed new loan carried “very expensive” interest and “extraordinary” further costs, adding that the debt was “very valuable to those investing in it”.
