Investor group submits last-ditch rescue plan for Thames Water

By Sarah Young

LONDON (Reuters) -The senior creditors of Thames Water have presented a last-ditch turnaround plan to stop the utility being nationalised, promising an improvement in sewage spills to win over the regulator.

For 18 months, Thames Water has been at the centre of a scandal in Britain's water sector, with the company fined over 100 million pounds ($135 million) for pollution, while its debts of over 20 billion pounds have left it close to financial collapse.

The investor group, made up of 15 institutions including Aberdeen Investments, Elliott, PIMCO and Silverpoint Capital, propose investing billions of pounds of new equity alongside writing off several billion pounds of debt, to fund a five-year turnaround.

Regulator Ofwat said it would assess whether the creditors' plan would deliver a turnaround in Thames' operational performance and strengthen its financial resilience to the benefit of customers and the environment.

If it is rejected, it is likely Britain's biggest water company will enter the government's special administration regime, a form of temporary nationalisation, something finance minister Rachel Reeves wants to avoid given Britain's already strained budget.

The group, who collectively hold over 9 billion pounds of Thames Water's class A debt, plans to spend 3.9 billion pounds out to 2030 on upgrading sewage treatment sites to cut pollution incidents by 30% compared to 2024's performance.

Making the improvements will not require bills to rise over five years by more than the 35% already agreed by Ofwat, said the group, who have set up a bidco called London & Valley Water.

Some junior creditors oppose the plan, while environmental groups want Thames Water to be nationalised, angry that profit has been put ahead of clean rivers.

The plan, which would cost 20.5 billion pounds in total, also aims to fix leaks quicker, clean more sewers, and install UV technology to ensure the highest standards of drinking water.

The group had said in June it would inject 3 billion pounds of new equity, as part of its initial proposals, but it has since updated its plan.

"This turnaround has the opportunity to transform essential services for 16 million customers, clean up our waterways and rebuild public trust," said the bidco's chair designate Mike McTighe, former chairman of BT's network arm Openreach.

($1 = 0.7402 pounds)

(Reporting by Sarah YoungEditing by Frances Kerry)