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Qatar ahead in race for 7bn Thames Water

Richard Wachman
September 10, 2006
The Observer

A consortium spearheaded by Qatar's state-owned investment fund is the frontrunner to buy Thames Water for about 7bn, according to City investment bankers.

Qatar is believed to have lodged a bid that is significantly higher than an offer from City financier Guy Hands whose Terra Firma group is also battling to take control of Thames, owned by RWE of Germany.

Sources warn that things could still change and that final offers are not due until 9 October. But bankers say that Hands will have to 'push the boat out' if he is to win the bidding war as cash-rich Qatar is prepared to dig deep to secure Thames - acquired by the Germans in 2000 for about 4.5bn.

Several other groups are still in the running, but their prospects are fading. Macquarie, the Australian investment group, needs to offload South East Water if it is avoid regulatory obstacles, but potential buyers are hesitant to commit to a sale before they know whether the Australians will be able to outbid Qatar and Hands. Another consortium bidding for Thames, comprising Borealis, the Canadian Pension Plan, and 3i, the venture capital group, is thought to have failed to gain financial backing.

RWE says that if bids are not high enough, it could still plump for a flotation instead. The Thames auction is being overseen by Goldman Sachs and Deutsche Bank. JP Morgan is understood to be advising Macquarie.

The move by the Qatar Investment Office, which has teamed up with UBS's infrastructure fund, comes as other Gulf governments such as Dubai and Abu Dhabi seek to diversify their international holdings by acquiring European and US companies. Last year, Dubai took over ports operator P&O in Britain, and it has acquired a $1bn stake in German-American car maker, DaimlerChrysler.

Recently, the water regulator Ofwat unveiled plans to prevent any future owner of Thames from removing cash or assets from its regulated water business, raising fears that RWE might not get as high a price for the utility as it wants.

Thames caused an uproar in during the July heat wave, when it emerged that it had missed targets to fix leaking pipes while imposing a hose pipe ban and applying for a drought order.