Britain’s water regulator, Ofwat, has come under fire over claims that it has allowed hedge funds and other creditors to assume control of Thames Water without a formal transfer of ownership, according to a report by the Financial Times.
The accusation, raised by Liberal Democrat MP Charlie Maynard, suggests that control of the UK’s largest water company has effectively passed to its senior creditors — including hedge funds Elliott Management and Silver Point Capital — through a controversial £3bn emergency loan.
Under Ofwat’s regulatory framework, any change in ultimate control of a water utility requires formal approval.
However, Thames Water’s shareholder base — including pension funds Omers and USS, as well as Chinese and Abu Dhabi sovereign wealth funds — has abandoned the company, declaring it “uninvestable” and writing down their stakes to zero.
With shareholders withdrawing from decision-making and board oversight, Maynard’s legal team argues that control has effectively shifted to the hedge funds and institutional creditors, who are steering the company’s financial strategy. According to the MP’s lawyers at Marriott Harrison, the bondholder group now meets Ofwat’s own definition of an entity with “material influence” over Thames Water’s policies and affairs.
The controversy comes as Thames Water awaits a crucial ruling from the Court of Appeal, where rival bondholder groups are disputing the terms of the emergency loan. Without the financing, the company has warned that it could run out of cash by late March, potentially forcing the UK government to place it into special administration — a temporary renationalisation of the business.
Financial experts have warned that Ofwat’s handling of the situation could erode investor confidence in the UK’s regulatory framework. Tim Short, an investment banker specialising in regulated industries, described the regulator’s approach as a “flagrant dereliction” of duty, arguing that the lack of clear ownership and board oversight is detrimental to public trust.
“It is clear that a change of control has already occurred because the previous controlling parties have walked away,” said Short. “Yet Ofwat has allowed a situation where there is no clear ownership of the company or oversight of the board, and no consideration of the public interest.”
Ofwat, however, denies that a change of control has taken place, stating that Thames Water informed the regulator in January that no ownership transfer had occurred. In response to Maynard’s allegations, an Ofwat spokesperson said: “A comprehensive financial and operational turnaround at Thames is essential. The company must continue to pursue all options to seek further equity to fund its turnaround plan for the benefit of customers and the environment. Our turnaround oversight regime, introduced last year, including an independent monitor, is in place to give us oversight of this.”
A Court of Appeal ruling is expected next week on the validity of the senior bondholders’ proposed loan, which carries an interest rate of 9.75% plus additional fees. If the court rejects the deal, Thames Water is widely expected to enter special administration. Estimates of the potential cost to taxpayers vary, with Thames Water’s financial adviser, Teneo, suggesting the government may need to provide £3.4bn to £4.1bn in funding — though this could ultimately be recouped if the utility is later sold.
Maynard’s team, however, has contested these figures, arguing that a government rescue could cost as little as £66m. Ofwat has stated that it has not seen evidence to support this much lower estimate.
In a first-instance hearing last month, Thames Water’s general counsel Andy Fraiser and senior bondholder adviser David Burlison acknowledged that top-ranking creditors were now the “economic owners” of the company due to its financial distress. Burlison, a senior restructuring banker at Jefferies, further stated that his clients — including Elliott Management — “want to have elements of control” over Thames Water’s operations.
Despite this, the hedge funds deny having formal ownership of the company. In a statement, the senior bondholders said: “Creditors do not have any ownership or equity governance rights over the company. They are not the shareholders but are working hard to help get the company back on a sustainable footing given it has no equity value and all shareholders have walked away.”
