Thames Water board permitted £150m payout hours earlier than funding U-turn

The board of Thames Water agreed to pay a £150m dividend hours earlier than its shareholders U-turned on plans to pump emergency funding into the struggling water provider, the Guardian can reveal.

The water trade regulator is inspecting the choice by the debt-laden firm’s board to log out the payout at a gathering on 27 March, sources stated.

The next day, the corporate said an imminent £500m injection of funds that had been pledged by its buyers would not be paid, amid a standoff with the regulator Ofwat. That call threatens to tip Britain’s water firm into public palms, with Whitehall officers war-gaming its temporary renationalisation.

Ofwat plans to research the circumstances across the dividend paid by Thames, sources stated. On the time, Thames was already under investigation over its choice to pay a separate £37.5m dividend.

Thames’ destiny is without doubt one of the largest points dealing with the subsequent authorities, with Thames labouring below £15.6bn of debt, the majority of which may very well be added to the general public purse.

Thames stated it was too early to know what the end result of Ofwat’s inquiries into the dividend cost could be.

The corporate, which has a complex corporate structure, stated the cost was made out of the regulated firm to an intermediate guardian firm, Kemble Water Eurobond, to “settle a pension top-up cost” and “give up reduction” on tax losses.

In March the corporate and its shareholders drew heavy criticism when buyers refused to pay £500m of promised funding. Michael Gove, the communities secretary, stated the management of the corporate had been a “shame”.

In December the Guardian revealed that Ofwat was inspecting a £37.5m dividend paid from its regulated working firm to its final proprietor, Kemble.

Whereas the £150m payout didn’t go to Thames shareholders, Ofwat has been clamping down on the circulation of money from ringfenced water firms to holding firms, amid issues that payouts are weakening the funds of regulated water and sewerage companies.

In Could 2023 it modified the situations of water firms’ licences to stipulate that firms should clarify how dividend selections had been made and the way they “replicate general efficiency, alongside funding and monetary resilience wants”. The regulator can take motion the place an organization has failed to satisfy the situations.

This month it emerged that Ofwat was contemplating fining the corporate £40m over the £37.5m cost on the grounds that it breached these guidelines on dividends.

Sources near the scenario stated a last choice on that doable superb was unlikely to be printed earlier than the regulator guidelines on water firms’ five-year spending plans subsequent month.

Ofwat is because of publish its draft response to water firms’ enterprise plans on 11 July, after a delay brought on by the overall election. Thames’s annual outcomes have to be printed by 15 July.

The corporate, which serves about 16m households, faces the prospect of a possible particular administration, dealt with by the federal government, if it can’t elevate recent funds from buyers. Officers are drawing up contingency plans for a brief nationalisation below the codename Venture Timber.

A Thames Water spokesperson: “We take our licence obligations very critically, together with these regarding the declaration and cost of dividends.

“In March 2024 we settled with our intermediate guardian firm, Kemble Water Eurobond, an interim dividend to allow it to settle a pension top-up cost on Thames Water’s behalf and to give up group reduction for full-year 2023 tax losses. These transactions had been money and reserves impartial for Thames Water Utilities Restricted, which is the regulated enterprise, and elevated the corporate’s monetary resilience.

“Ofwat doesn’t assert any potential breach by Thames Water of its licence and it’s too early to know the end result of Ofwat’s enquiries in relation to this matter.”

Thames stated its final shareholders, which embrace the Canadian pension fund Omers and the British college employees pension scheme USS, had not obtained a dividend since 2017 and it didn’t plan an “exterior dividend” till 2030.

An Ofwat spokesperson stated: “We await the corporate to reveal its monetary report together with any dividend. We have now new powers to behave in opposition to firms paying dividends that don’t replicate firms’ efficiency for purchasers and the atmosphere or which compromise monetary resilience, and we are going to use them as applicable.”

A downgrade by the credit score scores companies Moody’s and S&P in April meant Thames Water couldn’t pay dividends with out breaching its licence.

The water trade has confronted extended anger from politicians and the general public over repeated sewage spills into Britain’s waterways throughout a interval wherein it has made vital funds to buyers and handed executives massive bonuses.