Macquarie injects £550m into Southern Water to maintain turnaround plan

Macquarie Asset Management is to inject £550m (€636m) of equity into Southern Water to help the UK utility company maintain its turnaround plan amid high inflation and interest rates.

The move follows a £1bn recapitalisation of Southern Water by Macquarie in 2021, which saw the Australian infrastructure fund manager secure a majority stake in the firm.

According to Southern Water, the new equity funding will help “maintain the momentum of its turnaround plan and manage the impact of a high inflation and interest rate environment on its operating, maintenance and funding costs”.

It will also enable Southern Water to increase investment in its network to £3bn by the end of 2025.

Martin Bradley, head of infrastructure for EMEA at Macquarie, said: “When we invested in Southern Water in 2021, we said ts operational transformation would take time. Whilst the company is making good initial progress, maintaining this momentum depends on significant and sustained investment in its infrastructure.

“Instead of reducing our ambitions in the face of higher cost inflation and interest rates, we are backing Southern Water with additional equity, enabling it to invest circa £1bn more than the funding it received via the regulatory framework for the period.”

One of the objectives of Southern Water’s turnaround plan is to improve its environmental performance and to move from a two-star to a three-star environmental performance assessment rating, as measured by the UK’s Environment Agency.

In 2021, prior to Macquarie’s initial recapitalisation, Southern Water was hit with a £90m fine for illegal discharges of sewage between 2010 and 2015.

“Securing the ongoing investment needed to achieve the ambitions of Southern Water’s customers and stakeholders will rely on important decisions by its regulators,” Bradley said.

“With rainwater run-off from highways and urban areas into the sewer network causing around 98% of all pollution events in the Southern Water area, we also need a broader conversation on how we progress long-term solutions that relieve pressure on the UK’s legacy storm overflow system.”

At a time when the ownership of privatised water companies is in the public eye, Macquarie has stressed that Southern Water shareholders have not received any dividends since September 2017 and said it “does not anticipate making any distributions for the remainder of this regulatory period”, ending in 2025.