Thames Water creditors propose new rescue plan; Tesco ups profit outlook despite pressure on household budgets – business live

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The consortium of investors, including Aberdeen Investments, the US hedge funds Elliott and Silverpoint Capital and California-based PIMCO, has submitted its proposal to the water regulator Ofwat today.

Ofwat will now assess the proposal, the group said,

with the aim of reaching alignment as quickly as possible this autumn given the urgent need to stabilise Thames Water and begin to deliver long-term performance improvement.

For a year and a half, Thames has been at the heart of a scandal in Britain’s water industry, with the company fined more than £100m for sewage spills while its debts of more than £20bn have left it teetering on the brink of financial collapse.

Introduction: Thames Water creditors propose new rescue plan; Tesco ups profit outlook despite pressure on household budgets

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Thames Water’s creditors have put forward a new rescue plan with £5.4bn funding for the beleaguered water company, under which outstanding fines for sewage spills will be paid and no dividends will be paid to shareholders.

Thames Water is labouring under huge debts built up over two decades by owners who have been criticised for paying out dividends without investing enough in its leaking pipes and malfunctioning treatment works.

A consortium of investors who hold much of the company’s debts, called London & Valley Water, have been locked in negotiations with the regulator Ofwat for months. The group said £12.5bn of debt will be written off, in what is expected to be the largest-ever loss on a UK infrastructure investment.

Within this, class A investors will write off £4bn of their loans – a quarter of all class A debt – compared with £3.2bn offered in May.

The creditors also said they would invest about £150m more in new equity capital than previously suggested, taking the total to £3.15bn.

Existing equity, previously valued at £5bn, will be cancelled. No dividends will be paid during the turnaround period. The plan, which is not yet legally binding, includes £5.4bn in committed capital, which will support £20.5bn of strategically targeted investment and operational expenditure over the next five years.

The group said the new plan is “the fastest and most reliable route” to turn Thames around, to avoid putting the UK’s largest water company, which serves 16 million consumers, into a form of temporary nationalisation.

Mike McTighe, the proposed future chair of Thames under the terms of the plan, said:

There is a huge amount of work to be done to turn around Thames Water and deliver the improved service and environmental outcomes that customers and local communities deserve.

From day one, we will inject billions in new investment, strengthen Thames Water’s balance sheet, transform the company for thousands of hard-working frontline staff and begin the delivery of an operational turnaround that puts 16 million customers and the environment first.

Tesco, Britain’s biggest retailer, has raised its profit outlook after sales were boosted by an unusually hot summer, despite pressure on household budgets.

Tesco said it had won market share from rivals, but highlighted rising competition and “continued pressure on household budgets”. It said it had reduced prices on 6,500 products, with an average reduction of 9%.

The supermarket chain’s UK like-for-like sales rose by 4.9% in the first half of the year, while across the group like-for-like sales (at outlets open at least a year) climbed by 4.3%. Overall revenues rose by 5.1% to £33.1bn. However, profit before tax fell by 6.3% to £1.3bn.

Tesco now expects to make an adjusted operating profit of between £2.9bn and £3.1bn this year, up from between £2.7bn and £3bn previously.

Ken Murphy, the chief executive, said:

Competitive intensity remains elevated. However, in the first half, a better-than-expected customer response to our actions and the benefit of an extended period of good weather have helped offset the cost of our investments.

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