U.S. fund KKR makes £4 billion management-buyout bid for UK’s Thames Water

Private equity investor KKR & Co. is offering about £4 billion ($5 billion) to take control of the U.K.’s struggling Thames Water utility in a management-led buyout, according to a person familiar with the matter.

Thames, Britain’s largest water utility serving some 16 million customers in London and the Thames River valley, is saddled with ballooning debt and has warned it will run out of cash by March 24. Privatized by the Thatcher government in 1989, Thames last summer began the process of raising additional capital, culminating in an announcement last week that it had received buyout proposals from a “number of parties.” Thames said it was studying each bid.

Thames Water needs to restructure its debt and capital structure as part of a broad turnaround, and would benefit from a single active owner, a source familiar with the matter told CNBC. Thames owed about £16 billion in debt as of last September.

KKR’s involvement would comprise a £4 billion management-buyout submission that would not result in the sale of assets or a breakup of the utility, the source said.

Thames Water and KKR declined comment.

Bloomberg reported earlier Wednesday that KKR was offering to inject nearly £4 billion into Thames Water for a majority stake.

KKR is a longtime investor in the U.K., having funneled more than £20 billion into the country since 1996. The private equity firm launched a platform for infrastructure investments in 2008, seeking investments with a long-term investment horizon.

The U.K.’s high court on Tuesday approved £3 billion in emergency funding for Thames Water from existing shareholders, allowing the utility breathing room to restructure its debts and secure new investors.

Thames Water is part of a group of companies known as the Kemble Water Group that are owned by a consortium of institutional shareholders – mostly pension funds and sovereign wealth funds. The biggest shareholder is the Ontario Municipal Employees Retirement System, one of Canada’s largest pensions.

The crisis-plagued utility has faced criticism for a sharp increase in sewage discharge into Britain’s waterways, including the 215 mile-long Thames, which flows through the nation’s capital.

– CNBC’s Jenni Reid and Sawdah Bhaimiya contributed to this report.