Macquarie to inject £1.2bn into struggling Southern Water
Macquarie is to invest £1.2bn into the struggling utility Southern Water in a move that could prevent a possible breach of its regulatory license.
The new equity investment plan will enable Southern, which supplies water to 2.6m customers in Kent, Sussex, Hampshire and the Isle of Wight, to fund its Ofwat-approved investment programme for the next five years.
The package includes an initial £655m of equity, followed by a further £545m to be committed by December 2025. Holders of Southern’s most expensive debt, which include the US investor Ares Management and Westbourne Capital, will have £415m struck off as part of the deal, according to a source cited by the Guardian.
Southern Water has been in a race to secure cash to avoid a potential ratings downgrade that may have led to a breach of its operating licence. Its credit rating was downgraded to junk status by Moody’s last November.
The utility has been majority-owned by Macquarie since 2021 after the Australian investor put in an emergency £1bn of cash intended to stave off renationalisation.
The water industry as a whole is battling a crisis of sewage leaks and soaring debts after years of underinvestment into the UK’s network of pipes, storage facilities and treatment plants.
Thames Water, the UK’s largest water supplier, has amassed debts of around £19bn and is on the cusp of being brought into special administration by ministers after KKR dipped out of a £4bn emergency rescue deal earlier this year.
Ofwat approved an increase to average water bills in England and Wales of around 36 per cent over the next five years in December, as part of a wider £104bn investment programme. Southern Water was permitted a 53 per cent increase but has appealed to the UK’s competition authority for a further bill hike.
Macquarie cash reflects ‘confidence’ in reform
Macquarie said its injection into Southern Water reflected “confidence” in government commitments to reform the sector and “address the long-term need for increased investment”.
“With the help of our investors’ capital, Southern Water will have the financial resources to maintain its positive momentum,” Macquarie’s senior managing director, Martin Bradley, said.
“While it’s been a difficult time to raise private sector capital for a UK water company, we are aligned with the government’s ambition to reform the sector and are encouraged by the desire to achieve the reset required to effect real long-term change.”
He added: “We will continue to work with Southern Water’s management in its constructive engagement with Ofwat, DEFRA, the Environment Agency, the Drinking Water Inspectorate, and community groups to create the conditions to deliver on our shared ambitions.”