RWE takes £400m out of Thames Water ahead of sell-off

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The Independent Online

The German owners of Thames Water are taking an estimated £400m out of the business and loading it up with more debt in advance of the planned sale of the company later this year.

A complex financial restructuring of the business announced yesterday by RWE will have the effect of increasing Thames' gearing from about 50 per cent now to 65 per cent through the issue of new bonds.

RWE, which bought Thames for £5bn six years ago, said it planned to sell off £875m of Thames debt, while Thames itself would issue new bonds in addition to the £600m bond sale it announced last month.

A Thames spokesman said the refinancing was simply designed to replace debt guaranteed by RWE with debt issued against Thames as a free-standing company. RWE said: "The proposed capital structure has been arrived at following a thorough review with the aim of providing an independent Thames Water with a stable and sustainable capital structure that maintains sufficient headroom to enable the business to fully deliver its regulatory obligations." It added that the regulator Ofwat had been kept fully informed.

Analysts estimate that the refinancing will enable RWE to take about £400m out of Thames. It is not clear whether or how the restructuring will affect the sale of the company.

One issue which bidders are concerned about, however, is Thames' exposure to possible cost overruns on London Underground through its 20 per cent share in Metronet, the consortium which has taken over two-thirds of the Tube network.

Metronet, which controls the Bakerloo, Central and Victoria deep underground lines as well as all the sub-surface lines, is understood to be facing a potential £1.2bn overrun on its investment programme over the next four years, according to one City source. Thames would be responsible for a fifth of that.

Three private equity bidders - Guy Hands' Terra Firma, Australia's Macquarie bank and a partnership between Qatar's state investment authority and UBS - have tabled bids for Thames. None of the bidders is thought to be interested in the Metronet stake. But they would have to buy it as part of the deal and then sell it on. Metronet's four other shareholders have right of first refusal.

A Metronet spokesman denied there was a £1.2bn overspend.

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