(Bloomberg) -- Investor demand for a new Welsh Water debt sale passed £1.2 billion ($1.57 billion), even as concerns around Thames Water Utilities Ltd continue to dog the industry.
The utility, issuing through Dŵr Cymru Financing UK Plc, sold a £600 million sustainability Class-B bond due in 20 years, according to a person familiar with the matter who asked not to be identified.
The spread, helped by the strong bids, was tightened by about 20 basis points to 138 basis points over gilts at pricing, the person said. Fair value for the new bond was seen at around 125 basis points over UK gilts, according to separate people familiar with the offering.
Debt investors have been happy to make a distinction between the various companies in the UK’s embattled water sector. Severn Trent Plc pulled in strong investor demand for a deal in July for example. Still, the price at which investors have been willing to support debt sales has increased.
“Thames Water definitely weighs on all the UK water companies, and looking at them versus non-water utilities makes that pretty clear,” said Gordon Shannon, portfolio manager at TwentyFour Asset Management. “Comparing it to SSE Plc, Welsh Water is trading about 50 basis points wider than before Thames became an issue.”
Still, water companies are swallowing the higher costs and coming to the bond market. Anglian Water Services Financing Plc could follow Welsh Water. It has been holding calls with fixed-income investors on Tuesday, exploring a possible 20-year sterling green bond.
All of the country’s suppliers — including Welsh Water — are under investigation by the regulator Ofwat for sewage spills.
UK water firms are in the process of updating the regulator with their business plans. A final determination is due in December. The industry has come under intense public scrutiny for pollution and sewage leaks, while struggling to upgrade aging infrastructure in the face of soaring interest rates. Thames has said it will have to raise bills by as much as 59% by the end of the decade and that cuts proposed by its regulator will stop it from raising much needed equity to stay afloat, in a five-year business plan released last week.
“In December, we expect the Final Determination from Ofwat on our investment plans for 2025-30 which will more than double our capital expenditure compared the current five-year investment period,” a spokesperson for the company said in emailed comments.
“As a not-for-profit company, we have built strong financial footings and brought down our gearing,” they said, adding that Welsh Water’s credit ratings were among the strongest in the sector, helping secure funding at a lower cost.
Welsh Water is the sixth largest of the 10 regulated water and sewerage companies in England and Wales and does not pay dividends to external shareholders.
The offering had an expected rating of A3 by Moody’s Ratings, A- by S&P Global Ratings and A from Fitch Ratings. The sale was managed by BNP Paribas SA, Lloyds Bank Plc and HSBC Holdings Plc.
(Updates with final pricing details throughout)
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