CORPORATE UPDATE: £900 MILLION EQUITY RAISE, REQUEST FOR REFERRAL OF FINAL DETERMINATION, LIQUIDITY AND CREDIT  RATINGS UPDATE

SW (FINANCE) I PLC

Released 18 February 2025

RNS Number: 5204X

SW (Finance) I PLC

18 February 2025

 18 February 2025

SW (FINANCE) I PLC (the "Company")

SOUTHERN WATER SERVICES LIMITED ("Southern Water" and together with the Company, the "SW Group")

£900 MILLION EQUITY RAISE, REQUEST FOR REFERRAL OF FINAL DETERMINATION, LIQUIDITY AND CREDIT RATINGS UPDATE

Equity Raise

Today, Southern Water is announcing it will raise £900 million of committed equity to support its significant investment programme for the 2025-2030 regulatory period (the "Equity Raise"). Following Southern Water's review of the Final Determination published by Ofwat on 19 December 2024, the Equity Raise is necessarily higher than the £650 million equity raise signalled in August 2024 alongside Southern Water's response to Ofwat's Draft Determination. This also supports lower gearing and investment-grade credit ratings in the face of tightening sector-wide ratings thresholds.

Southern Water is progressing the Equity Raise with its shareholders, led by its majority shareholder, being funds managed by Macquarie Asset Management, and the process for procuring £900 million of equity commitments is expected to be concluded no later than 30 June 2025.

The Equity Raise follows over £1.65 billion of new equity funding into the Southern Water group since September 2021, which has supported Southern Water in investing more than £3 billion in its network during this 2020-25 regulatory period and in delivering its Turnaround Plan. No dividends have been received by Southern Water's external shareholders since 2017, supporting the operational and investment focus and the Turnaround Plan. 

Southern Water's Turnaround Plan has already delivered a material improvement in operational performance, including amongst other things a 40% reduction in pollution incidents (from a 2019 baseline), an increase in its Environment Performance Assessment star rating, an improvement in its key water quality metric from bottom quartile to second quartile and an 80% reduction in customer complaints since 2021. Southern Water has set an ambitious plan for continuing the current pace of improvements into the 2025-30 regulatory period.

Final Determination and Referral to the Competition and Markets Authority

Southern Water has a significant investment requirement for the 2025-30 regulatory period - the largest in the sector relative to its current network - to meet the requirement of customers and the environment.

After a detailed review of the Final Determination, Southern Water's board has requested Ofwat to refer its Final Determination for independent review by the Competition and Markets Authority ("CMA").

Southern Water is ready to submit its 'statement of case' to the CMA in due course, in line with the CMA's timetable.

The Equity Raise is not conditional on the outcome of the referral of the Final Determination to the CMA by the Southern Water board.

Liquidity and Credit Ratings Update

Southern Water has successfully raised £1.5 billion of debt financing over the last 14 months and has sufficient liquidity until March 2026. The Equity Raise, together with planned additional financing activity during 2025, is expected to further enhance its liquidity position.

Standard and Poor's has announced today the conclusions of its review of the sector and has downgraded its assessment of the supportiveness of the regulatory framework for UK water companies from strong to strong/adequate. This has led to a substantial change of the financial ratio thresholds for a given rating such that a company must have lower gearing than in the past in order to maintain an investment grade rating.

In relation to Southern Water, Standard and Poor's has also announced today that it has extended its Credit Watch with negative implications on the 'BBB-' rating on the bonds issued by the Company. In its announcement Standard & Poor's indicates that it would downgrade the rating on the bonds if it were to consider that the SW Group's liquidity position would no longer remain adequate by 31 March 2025, being defined as liquidity sources not covering uses by more than 1.1x for the 12-month period starting 1 April 1, 2025.  As set out above, and in Standard and Poor's announcement, the Company has commenced discussions with lenders to raise the necessary liquidity in order to meet these requirements in a timely manner pending Standard and Poor's further assessment of the liquidity position based on the additional information available to it as at 31 March 2025.

For further information, please contact Stuart Ledger (Group CFO) at:

Address:          Southern House, Yeoman Road, Worthing, BN13 3NX, United Kingdom

Tel:                  01903 272 056

Email:              [email protected]

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