Thames Water appoints new chair as crisis mounts

By Sarah Young and Paul Sandle

LONDON (Reuters) -Thames Water appointed corporate veteran Adrian Montague as chairman to try to stabilise Britain's biggest water supplier after the abrupt departure of its CEO raised concerns about its viability, with the government prepared to step in.

The British government is considering temporary state ownership of the company, which supplies a quarter of British households, if it cannot raise more funds to drive its turnaround.

City heavyweight Montague, a former chairman of British Energy, Anglican Water and Aviva, will join the board on July 10, Thames Water said on Thursday.

His appointment was announced two days after chief executive Sarah Bentley stepped down from the company, which is struggling with 14 billion pounds ($17.7 billion) of debt and has failed to meet customer and environmental targets, including stemming the flow of raw sewage into rivers.

The company's management had asked shareholders for a 1 billion pound equity injection to strengthen its balance sheet and fund the necessary upgrade of ageing infrastructure.

Its owners include Ontario Municipal Employees Retirement System, the UK's Universities Superannuation Scheme and China Investment Corp.

Montague said in a statement he would work with the board, regulators and investors to focus on the "company's turnaround plan and its future financing needs".

Water regulator Ofwat earlier on Thursday said Thames Water needed to improve its financial resilience, but its 4.4 billion pounds of cash reserves and committed funding provided "strong liquidity".

Water companies in England and Wales are a political headache for Prime Minister Rishi Sunak's Conservative government given a public outcry over the release of sewage into rivers and seas, and rising bills that have raised questions over the Conservatives' privatisation of the sector in 1989.

A poll published by YouGov on Thursday showed that seven in 10 Britons believe water companies should be nationalised.

CONCERN SPREADING

Listed British water stocks dropped on Thursday with shares in Severn Trent, United Utilities and Pennon down around 3%.

But analysts said those companies were better capitalised than Thames Water.

Its debt burden is made worse because about half of its repayments are linked to inflation, which has soared since late 2021.

The financial resilience of some of the other unlisted water companies is also under scrutiny as, like Thames Water, they have amassed vast debts since privatisation.

Ofwat said in December it was also engaging with Southern Water, majority-owned by Macquarie, and Yorkshire Water, which is majority-owned by the private equity arm of Singapore's GIC investment group, as well as SES Water and Portsmouth Water.

Since privatisation, critics have accused the operators of prioritising dividend payments over much-needed infrastructure upgrades.

Ofwat is toughening up its rules, including stopping dividend payments in certain cases, and confirmed in a separate statement on Thursday that bonus payments for water executives would only be permitted when performance justified them.

($1 = 0.7903 pounds)

(Reporting by Muvija M, writing by Sarah Young and Paul Sandle; Editing by Kate Holton, Christina Fincher and Barbara Lewis)