Thames Water confirmed the payment of two new dividends totalling £158.3 million in March after the heavily indebted company said it was unlikely to be able to raise new funds before December.

The water utility, which is burdened by debts of more than £15 billion, said it paid the dividends to fund two of its holding companies, Kemble Eurobond and Thames Water Limited, which are in financial difficulties.

The dividends come after water regulator Ofwat said it was “willing” to take action against Thames Water over a lower dividend payout of £37.5 million in October 2023.

Under new rules introduced last year, water companies with poor financial and environmental records are not allowed to pay dividends.

Thames Water paid a total of £196 million in dividends last year.

The company said it was still seeking new funding to maintain and modernise its infrastructure after investors cut £500 million in emergency capital earlier this year.

The company said it had cash of £1.8 billion, enough to fund its operations until the end of May next year, but that new investment was needed.

Thames Water said profits rose to £75.4 million for the year ended 31 March, compared with a loss of £30 million a year earlier.

Sales rose 11% to £2.5 billion.

The number of pollution incidents rose from 331 in the previous year to 350. The reason given was a year with more rain than expected.

The number of “serious pollution incidents” has fallen by 18 percent, Thames Water said.

The company said it spent £2 billion last year maintaining and upgrading its infrastructure.

Chief Financial Officer Alastair Cochran said the dividend payments should help the company make “top-up payments” to its pension plans.

He added that the dividends were “entirely in line with normal practice”.

The company’s financial update will be followed on Thursday by a draft ruling from Ofwat on the water companies’ five-year spending plans and bill increases up to 2030.

This will begin six months of negotiations with Ofwat, which will lead to a final decision in December.

The story continues

The utility giant, which has 16 million customers in London and the Thames Valley, unveiled plans in April to increase spending to £19.8 billion, with the remainder to be used for environmental projects.

However, this would also lead to an increase in customer bills of 44%, an amount that provoked strong reactions from consumer associations.

Meanwhile, the process of raising new cash is not expected to be completed until Ofwat makes its final decision.

Managing director Chris Weston said Thames had “conducted informal explorations which showed there was interest in the market”.

He added that the company would consider a “broad range” of potential investors, which could include existing shareholders.

If new funds cannot be raised, Thames Water’s dire financial situation could spell a serious industrial crisis for Sir Keir Starmer’s newly elected Labour government.

According to reports, a plan codenamed “Project Timber” was drawn up in Whitehall this spring that could lead to the de facto nationalisation of the company.

According to the plans, the company would be placed under a kind of special administration in the event of the parent company’s insolvency.

Mr Weston added that it would be “not in the interests” of customers or investors if the company fell into government hands.

Business Secretary Jonathan Reynolds hinted during a Bloomberg debate before the election that he did not want “nationalisation” of Thames Water.

At the Bloomberg debate on Thames Water, Mr Reynolds said: “I think there should be a solution that does not lack for it.”