Southern Water shareholders are diluting their equity stake in the UK utility through the sale of a majority chunk of the business to Macquarie Asset Management.

Macquarie said it will invest, on behalf of long-term investors including pension funds and insurance companies, over £1bn (€1.2bn) in “new equity to recapitalise the business and implement a more sustainable financing strategy” for Southern Water.

A consortium of infrastructure funds, pension funds and private-equity investors own Southern Water through Greensands Holdings, managed or represented by JP Morgan Asset Management, UBS Asset Management, Hermes Investment Management and Whitehelm Capital. Hong Kong-based Cheung Kong Infrastructure and The Li Ka Shing Foundation are direct investors.

Last month, Southern Water was hit with a £90m fine for illegal discharges of sewage between 2010 and 2015 following the Environment Agency’s prosecution.

Macquarie’s investment will help Southern Water upgrade its network with £2bn to be invested over the next four years of the current regulatory period to fix the pipes, pumping stations, and sewers which are ”underperforming and causing harm to the local environment”.

Macquarie said it has consulted with water and wastewater services regulator Ofwat its plans for Southern Water which includes ”strengthening a zero-tolerance mindset to environmental pollution by helping to significantly improving Southern Water’s environmental track record, which Macquarie Asset Management recognises is one of the worst-performing in the UK water sector”.

Macquarie’s plan also includes reducing leaks, ensuring affordable customer bills and improving customer service.

Leigh Harrison, the head of Macquarie Infrastructure and Real Assets, said Southern Water needs significant investment to improve its operational and environmental performance and financial health.

Without it, the business will be unable to fulfil the expectations of the millions of customers that rely on its services each day or reduce its negative impact on the local environment, Harrison said.

He added: “This major £1bn equity investment by one of our long-term infrastructure funds will help put Southern Water back on a stable footing and enable an ambitious multi-year transformation plan to make essential water and wastewater services in the South East of England more sustainable and resilient.

“While we expect Southern Water will have made substantial progress in addressing its issues by the end of 2025, we acknowledge the business’ transformation will take time and that is why we intend to own our stake in Southern Water over multiple regulatory periods.”

Keith Lough, the chair of Southern Water, said: ”A £1bn equity investment in Southern Water and its group strengthens our balance sheet to enable Southern Water to increase investment in our network and accelerate the transformation plans we have put in place.”

Ian McAulay, CEO of Southern Water, said the investment strengthens Southern Water’s ability to tackle the longer-term challenges posed by climate change and population growth, at the same time as being responsible custodians of Southern England’s rivers and seas.

“With our long-term shareholders’ support, we are fully committed to protecting the local environment and providing the quality of service our customers deserve.”

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