Regulator eyes Thames bid battle

Thames Water has missed targets to cut leaks three years in a row

Water regulator Ofwat has said it will be keeping a close eye on the takeover battle for Thames Water.

The regulator has voiced concerns over the possibility of bidders taking on too much debt to purchase the utility.

Ofwat has hinted it could change Thames's licence in the event of a buyout to protect it against overborrowing by a new owner.

Thames' current owner - German utility group RWE - is reportedly looking to sell the company for about £7bn.

According to reports, three prospective bidders are thought to be circling the firm.

These include Terra Firma Capital partners led by UK financier Guy Hands, Australia's Macquarie Bank and a group led by Swiss bank UBS.

RWE bought Thames in a £4.3bn deal six years ago.

Protecting consumers

Under rules set out in 2004, any deal to buy Thames should involve debts of no more than 55-65% of the group's value.

Ofwat says the rules on gearing - the value of debts against a firm's assets - aim to protect consumers from the company taking on too much debt.

"We have been clear that the choice of a capital structure is for management and not the regulator. But we would not allow structures that transferred additional risk to customers," Ofwat said.

Thames Water is currently 44%-geared, so any new owner has room to increase the firm's debt.

But any rise in debt at the firm would have to be weighed against the huge investment costs any buyer would face to tackle water leaks in London.

According to Standard & Poor's, Thames needs to invest £700m a year to cut leakages in its pipes. It currently loses 893m litres of water a day.

Thames Water supplies water to eight million people across London and the south of England, and also provides sewage services to 13 million customers.