The owner of Thames Water is a step closer to insolvency after it issued a notice to lenders that it has defaulted on £400m of bonds.
Kemble Water had already revealed that it would be unable to meet the repayment of a separate £190m loan.
On Friday, it sent a formal notice of default to the holders of its tranche of bonds maturing in 2026 as it did not pay the interest that had been due on Tuesday.
The company is now seeking talks with creditors over its debt structure and has hired consultants Alvarez & Marshall to advise on its next move.
The cash crunch comes after Thames Water shareholders this month decided to abandon plans to inject £500m into the utility company, which supplies a quarter of England’s water.
Kemble is funded entirely through dividends received from Thames Water.
It emerged on Thursday that two Chinese banks are to determine the fate of the troubled supplier as it scrambles to avoid nationalisation.
A consortium of lenders to Kemble is made up entirely of foreign banks, including the Bank of China and the Industrial and Commercial Bank of China – both of which are owned and controlled by the Chinese state.
Kemble has requested that its bondholders “take no creditor action” over the default so that it can have the stability to explore “all options”.
It said it would provide a further update in the coming weeks.
Before the announcement, the bonds in question were already trading at 17p in the pound, having fallen from 88p as recently as June last year.
It means that bondholders were already expected to receive only 17pc of the value of the loan if the bond was redeemed.
Thames was plunged deeper into crisis last month when its owners refused to honour a pledge to pump nearly £4bn of fresh capital into the company unless industry watchdog Ofwat agrees to a series of demands including massive increases in customer bills.
Trade union officials have sought assurances on jobs.
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