Australian owners to invest £1.2 billion in struggling Southern Water

A consortium led by the group has committed at least £655m to the water company, with a £245m – sourced from ‘existing shareholders and unnamed new investors’, according to a Guardian report – promised by the end of the year.

Macquarie, which controversially owned Thames Water from 2006 to 2017, holds a majority 62 per cent stake in Southern Water, and hopes the new deal will help it avoid a breach of its regulatory licence.

Southern Water provides wastewater services to millions of customers in Sussex and beyond, but reported debts of up to £6.2 billion at the end of March last year – a figure which brought the company dangerously close to a debt rating downgrade which, without cash, could have led to a breach of licence to operate under sector regulator Ofwat.

The investment comes after Ofwat authorised a 53 per cent household bill increase for Southern Water customers – the largest rise of any company in the country, according to The Guardian – in order to invest in new infrastructure over the next five years.

As part of this new deal, bondholders like US-based Ares Management and Australian company Westbourne Capital, have apparently agreed to a write down of their debt in return for minority stakes in the business, sources told The Guardian and The Financial Times.

The deal marks a big step for Southern, which has had its debt downgraded to ‘junk’ status by Moody’s investor service, one of three big credit rating agencies. Another major credit rating agency, S&P Global Ratings, threatened to cut its rating of Southern Water if equity-raising talks were not successful, and Ofwat requires an investment-grade rating from two of the big agencies in order to licence a company. “This additional equity investment demonstrates our commitment to Southern Water and its management team, and our belief that the planned investment programme will deliver for its customers and the environment,” Martin Bradley, a senior managing director at Macquarie Asset Management, told The Financial Times.