Mark Kleinman: Well of sympathy runs dry for Thames
Mark Kleinman is Sky News’ City Editor and is the man that gets the City talking in his weekly City A.M. column. This week he tackles Thames Water’s loan, CoStar Group’s and listing reforms.
It was by any measure an extraordinary admission: Britain’s biggest water supplier doesn’t have the financial wherewithal to repay a £190m loan due in April.
The stark truth, disclosed by Thames Water’s grandee chairman, Sir Adrian Montague, to MPs last week, confirms what many observers have long suspected. Yes, Thames Water, a utility relied upon by 15m customers, is the most shambolically run major company in the UK.
The mess is not of Montague’s making, but I suspect that even an industrial turnaround veteran such as him would have balked at taking the job had he known the true scale of what he was walking into in the summer.
Public sympathy, like Thames’s drought-hit reservoirs, has run dry. Its record of wastage and pollution has been appalling, and the nerve with which it has sought a cap on the regulatory fines it faces beggars belief.
Montague’s only realistic short-term option now is to seek maturity extensions from Thames’s lenders.
That would do little more than kick the can down the road: with £1bn or more of borrowings due to mature in the next 12 months and its already-junk credit rating at risk of further pain, Thames Water is officially on life support.
Its board, though, appears to be gambling on some form of ‘too big to fail’ equivalence with the banking sector. Directors want the regulator, Ofwat, to agree next summer to swingeing bill hikes as the price for its shareholders delivering a promised £750m of new equity funding.
At least one of Thames’s big investors is sceptical that doing so wouldn’t – forgive the pun – be akin to pouring money down the drain. A closer look at the equity commitment announcement trumpeted in the summer reveals that the financing is subject to approval of the company’s business plan and securing the necessary compromises from Ofwat.
Hiring Chris Weston, the former Aggreko and British Gas CEO, as its new boss might buy some time with lenders, but is not going to provide the long-term panacea required to make it a sustainable company again.
Putting Thames Water into a form of special administration has been on the cards since the summer. It would be a drastic step, and probably ignite a major legal fight with shareholders, some of whom the government wants to commit to other long-term investments in the UK.
Apart from that, a solvent restructuring that would nevertheless include a brutal debt-for-equity swap may be Thames’s only other way out. The well has run dry for a company mired, both literally and metaphorically, in the sewers.
Paterson will be the Catalist for more change in the UK property sector
The perils of gazumping are a familiar headache to many housebuyers. So CoStar Group, the US real estate giant, will be feeling relieved that it didn’t get that distinctive and unwelcome taste of the British property market in its now-consummated pursuit of OnTheMarket, the online portal.
I understand that Catalist, the activist investment fund headed by Robin Paterson (pictured) and which has been agitating for changes at Foxtons, approached prospective backers about funding the purchase of a 10pc stake in OnTheMarket.
This would have been aimed at disrupting the portal’s takeover by CoStar – an offer which has already had a substantial impact on the share price of London-listed rival Rightmove.
According to a fundraising document I’ve seen, Paterson proposed changing the OTM management team, accusing it of pursuing “a flawed strategy” and of having “failed to live up to its original purpose”.
Catalist wanted to raise enough money to block the CoStar deal and then launch a counterbid; in the end, the American takeover became effective last week. Paterson might have failed in his latest gazumping mission, but his track record suggests he’ll be back with another target before too long.
Listing reforms risk alarming investors
Spot the odd one out: former BP chief executive Tony Hayward; Alex Chesterman (pictured), the Cazoo founder; ex-BP chief CEO Bob Diamond; and William Allen, an insurance specialist?
The answer is that all four tried to consummate public market mergers through special purpose acquisition companies (SPACs), but only Chesterman succeeded – and even he has now departed.
Of the remaining trio, Allen and Hayward have given up on their ambitions, while Diamond’s Concord Acquisition Corp was thwarted in an effort to merge with the cryptocurrency firm Circle Financial, and has yet to find an alternative. Energy Transition Partners, Hayward’s Netherlands-listed SPAC, recently came close to a deal to absorb a portfolio of assets in India, I’m told. Bankers say that ultimately, the assets were not mature enough to present a credible standalone listing story.
Therein lay SPACs’ most fundamental problem as markets turned away from them, with so many companies which went public that way seeing their shares perform calamitously in the aftermath. Call them contrarian, but there is a small minority of bankers who believe that SPACs are primed to mount a limited comeback.
I’m sceptical about that, but as Nasdaq executives intensify their rhetoric about the attractiveness of New York to British-based companies, even the City watchdog’s move to simplify listing rules – announced yesterday – and their acknowledgement that this “could entail an increased possibility of failures” will set alarm bells ringing for many.