Severn Trent has today announced it is looking to raise a total of approximately £1 billion from a major New Ordinary Shares issue to help fund its upcoming AMP8 investment programme.

Severn Trent is proposing record levels of investment with its transformational AMP8 Business Plan - £12.9 billion total expenditure across the upcoming 2025-30 five-year regulatory period, driving 31% real RCV growth.

The record investment programme, which is expected to create 7,000 jobs across the Midlands, is aiming for significant progress on customer priorities, including a 30% reduction in storm overflow spills, a 30% reduction in pollutions and  a16% reduction in leakage.

Severn Trent says the scale of the plan means that for every household it serves it will invest £2,400 back into the region, delivering a further step-change in service for more than four million customers across the Midlands.

Affordability is a key focus of the plan, which includes a £550 million package to support 693,000 customers who might otherwise struggle to pay their bill.

The water company will invest £5 billion in a range of projects, including:

• £3 billion in transforming the natural environment through WINEP (Water Industry National Environmental Programme), delivering a range of sustainable outcomes, including addressing 99% of the reasons attributed to its operations for rivers not being in good ecological status;
• £0.7 billion in securing new water resources, adding over 200 million litres of water per day, helping to protect customers supplies now and provide resilience for the long term; and
• £0.4 billion in playing its part in the decarbonisation journey, eliminating 240,000 tonnes of CO2e and delivering operational Net Zero by 2030.

Qatar Investment Authority to take £500 million of New Ordinary Shares

The £1 billion funding in new shares will come via a non-pre-emptive placing to institutional investors to raise approximately £500 million and an investment from the Qatar Investment Authority (QIA) of £500 million.

The Qatar Investment Authority is the sovereign wealth fund of the State of Qatar which was founded in 2005 to invest and manage the state reserve funds. QIA is among the largest and most active sovereign wealth funds globally.

In a separate offer, Severn Trent is offering to provide retail investors in the United Kingdom with an opportunity to acquire Retail Offer Shares, contributing up to the GBP equivalent of €8 million.

The Placing will be conducted through an accelerated bookbuilding process which is being launched immediately following the announcement.

Together, the total number of New Ordinary Shares are expected to represent approximately 19% of the existing issued share capital of the Company.

Severn Trent has also published an Investor Summary of its AMP8 business plan for its subsidiary Severn Trent Water for the regulatory period beginning 1 April 2025 until 31 March 2030 which it intends to submit to Ofwat on 2 October 2023.

The announcement states:

“This ambitious plan builds on Severn Trent's strong track record of operational and financial outperformance and will deliver for customers, the environment, the region and shareholders, consolidating Severn Trent's position as sector leader.”

In particular, the business plan and associated Equity Issue:

• Include a step-change in investment, with £12.9 billion of total expenditure in real terms (including £5.0 billion of enhancement expenditure), driving 31% real RCV growth over AMP8
• Provide a platform to continue Severn Trent's strong track record across the three pillars of RoRE outperformance: Totex, ODIs, and financing
• Ensure Severn Trent Water is responsibly funded from the outset, with average gearing of 65.2% expected for AMP8 as Severn Trent continues to target investment grade credit rating of BBB+/Baa1 for Severn Trent Water
• Enable investment in the outcomes Severn Trent's customers prioritise the most, including a substantial programme of sustainability-led investment and step change reductions in key measures including leakage, pollutions and storm overflow spills

The Equity Issue also allows Severn Trent to accelerate its investment through utilisation of the two year transition period where approximately £400 million has been earmarked and positions Severn Trent to deliver through the AMP8 period.

The proposed issue and allotment of the New Ordinary Shares is within the existing shareholder authorities granted to the company at its Annual General Meeting held on 6 July 2023.

Severn Trent said that prior to launch of the Placing it had consulted with a significant number of its shareholders to assess their feedback as to the purpose of the Placing.

The statement says feedback from the consultation was supportive and as a result the Board has concluded that the Placing is in the best interests of shareholders and wider stakeholders and will promote the long-term success of the company.

Rothschild & Co is acting as Financial Adviser to the company.