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Thames Water could also be compelled to restate its accounts printed final yr, amplifying considerations over the monetary stability of the UK’s largest water firm.
Thames Water — which is making an attempt to avert renationalisation by way of a rescue bid from its collectors — is attempting to know the implications of getting to restate key figures in its accounts for the yr ending March 2024, in keeping with paperwork seen by the Monetary Occasions.
A restatement might trigger additional breaches of Thames Water’s debt covenants, strict phrases that imply the utility has to abide by sure monetary ratios. The accounting watchdog, the Monetary Reporting Council, is conscious of the problem, in keeping with folks accustomed to the scenario.
The UK’s largest water utility is struggling below a near-£20bn debt mountain and has agreed a backup £5bn rescue plan with its collectors after US non-public fairness agency KKR walked away from a bid earlier this month.
The senior creditor group, which includes round 100 monetary establishments together with US hedge funds Elliott Administration and Silver Level, has been unaware of the accounting drawback, in keeping with two folks accustomed to the scenario.
There was concern within the Thames Water camp that any modification to the accounts might immediate one among its senior lenders to allege that breach of debt phrases had occurred, in keeping with the paperwork.
In that occasion, Thames Water might argue that it acted in good religion and obtained sign-off of its accounts from PwC, the paperwork additionally learn.
The accounts for the yr to March 2024 confirmed Thames Water made its first revenue in 4 years at £139mn, in contrast with a lack of £132mn within the prior yr. Nonetheless, that was virtually fully right down to the beforehand agreed 10 per cent improve in family payments in 2023, which raised revenues by £221mn to £2.4bn.
Attorneys at Linklaters, the “magic circle” agency representing Thames Water, have recommended there could be “no sensible penalties” to Thames Water breaching covenants because of the restatements, nevertheless, because the utility already triggered key covenants final yr, the paperwork learn.
The potential restatements come at a dangerous second for Thames Water. The UK authorities stated on Thursday that it has “stepped up” preparations to plunge Thames Water into its particular administration regime, or SAR, and it signalled it could reject calls for from the collectors to exempt it from key environmental legal guidelines; a situation of their rescue bid.
The collectors — who’ve already agreed a separate emergency £3bn mortgage with Thames Water to stave off administration — had demanded that the federal government and regulator Ofwat grant licence adjustments and even emergency laws to defend the enterprise from environmental-protection legal guidelines.
The stand-off between the collectors and the federal government threatens to make Thames Water the primary water firm to fall into the SAR since utilities in England and Wales had been privatised in 1989.
Thames Water’s prior yr accounts had been ready below its chief finance director Alastair Cochran, who resigned in March and has since been changed. He didn’t instantly reply to a request for remark made by way of LinkedIn.
Thames Water declined to specify what the error had been to immediate potential restatement. It stated in a press release: “We comply with all UK-adopted Worldwide Accounting Requirements and take our regulatory accounting obligations severely.
“The corporate stays centered on placing Thames Water on a extra steady monetary basis, implementing its turnaround plan and delivering a market led resolution that’s in the very best pursuits of consumers, UK taxpayers and the broader economic system.”
The senior creditor group, Ofwat, the federal government, the FRC, Linklaters, and PwC all declined to remark.
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