(Bloomberg) -- Southern Water Plc is set to sell its first new bond since March 2021 as the indebted UK water industry comes under increasing financial and public pressure.
Southern Water is planning to offer sustainability bonds maturing in 18 years through its financing arm SW Finance I Plc, according to a person familiar with the matter, who asked not to be identified because they’re not authorized to speak about it. The company, which serves 4.7 million people in the south of England, is holding investor calls for the notes starting on Monday.
The return to the bond market follows the injection of more than £1.5 billion ($1.9 billion) by shareholders, a spokesperson for Southern Water said in an email. Today’s bond sale will help the company further ensure its long term financial resilience and help deliver its turnaround plan, they said.
The sale comes as the UK’s water and sewage companies face increasing financial pressure due to the soaring costs of servicing their inflation-linked debt piles. In July, Southern Water was forced to suspend dividend payments until at least 2025 after ratings company Fitch downgraded its debt and borrowing costs surged.
The troubles at Southern Water followed turmoil at Thames Water Ltd, which had talks with government officials about a temporary nationalization in the summer. While shareholders have made commitments to shore up the business, the situation remains fraught, and auditors warned this weekend that Thames Water’s parent company may run out of money by April if shareholders don’t inject more equity into the debt-laden utility.
The industry has also faced a public backlash about decades of underinvestment in infrastructure that has resulted in leaking pipes and regular sewage spills. United Utilities Group Plc was in the spotlight Monday after a BBC Panorama investigation into pollution incidents.
Southern Water said in October that it plans to invest a total of £7.8 billion between 2025 and 2030 to improve its services, modernize water supply works and reduce its environmental impact. The company aims to raise £4.6 billion of debt to fund the investment, with £3.4 billion from new debt issues. It also said it will raise combined water and sewage bills for customers by an average of 44% in the period.
Thames Water was the first UK water company to come to the bond market since the industry’s blow-up earlier this year. It drew in bumper orders by offering a high new issue premium for £300 million in notes maturing in 2040. The UK’s biggest water and sewage company is due to publish its interim results on Tuesday.
Lloyds Banking Group Plc, National Australia Bank Ltd and NatWest Markets Plc have been appointed as lead managers for Southern Water’s deal.
(Updates with comment from Southern Water in third paragraph.)
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