Infrastructure investors are preparing to file non-binding offers due this week for a stake in Thames Water, with Stonepeak among interested parties, sources said.

Thames Water is running the process, which is structured as a capital raise, as the embattled UK water and waste giant hunts for extra equity funding after existing shareholders refused earlier this year to inject further capital into the business.

The company, which is being advised by Rothchild on the process, said in its annual accounts for 2023 published on 9 July that it has GBP 1.8bn available to last it until the end of next May.

Stonepeak is among investors considering filing an offer having spent several months looking for an opportunity in the UK water sector, the sources said.

The size of the stake up for grabs is unclear although the sources said a buyer is expected to have to inject several hundreds of millions of pounds. Several sources said the amount being targeted has not been formally announced so far.

New York-headquartered Stonepeak is said by the sources to have last year filed a bid for Corsair’s stake in Kelda Water, although its offer was rejected, sources said.

Stonepeak’s Europe head, Daniel Wong, is familiar with Thames, having advised Macquarie Asset Management on the sale of its stake in the water and waste giant during his previous role heading Macquarie Capital’s infrastructure and energy advisory business.

One other source said interested parties in Thames also include a “smallish” European infrastructure fund with assets under management of up to GBP 2bn, while other insiders said Rothschild has reached out to a broad range of investors, including possibly existing shareholders in Thames.

Several of Thames’ shareholders, which include Omers Infrastructure, USS, Hermes and Fiera Infrastructure have left the board of holding company Kemble Water, partly to manage conflicts of interest arising from acting in the best interests of both their own investors and Kemble’s creditors.

Bidders for the Thames stake are expected to make their offers conditional on the outcome of Ofwat’s final determination due in December at the earliest for the UK water sector’s next price review for 2025-2030.

Ofwat said in its draft determination for the next price review that Thames might need to “look to a public listing to secure additional equity” in order to “maintain adequate levels of financial resilience in the medium term”.

Any purchase of shares in Thames through the capital raise would be a not dissimilar deal to Macquarie Asset Management’s injection a year ago of GBP 550m into Southern Water.

Both deals would further dilute the value of existing shareholders’ equity in Thames – although QIC’s Chief Executive Kylie Rampa said last month that it has already written down its investment in Thames to zero.

Any new investor in Thames is expected to be looking to buy the shares at a steep discount, although the risks involved in doing so are also likely to be high.

The highly leveraged company is seeking to stave off entering administration as it seeks to manage magnified debt costs and increased capex investment demands that under current plans total GBP 16.9bn for the next price review.

Thames currently can raise new debt but only to refinance existing loans rather than fund capex, while its parent Kemble is insolvent.

Thames Water’s main opco lenders recently hired advisors to come up with restructuring options for their loans, including taking a haircut in exchange for shareholders putting extra equity into the business.

Several sources said any new equity investor would aid this process, one adding that “there will be some interlinkage between the creditors and any M&A process”.

Thames Water, Rothschild and Stonepeak declined to comment.