Southern Water’s finances are coming under pressure, according to a report by the Financial Times this morning.

Deacribing Southern Water as “the heaviliy indebted utility controlled by Macquarie”, the leading financial media organisation says the ongoing financial crisis at Thames Water means water companies are under pressure increasing pressure in debt markets.

According to the FT, in recent days Southern Water has met with bond investors to provide them with an update on its AMP8 business plan and credit situation. the utility’s total debts have exceeded £6 billion, including more than £1 billion in liabilities related to derivatives.

The presentation by Southern Water’s Chief Financial Officer Stuart Ledger and Group Treasurer James Gillard alongside Pooja Shah, Senior Vice President at Maquarie, told investors that the company has made significant progress in its Turnaround Plan and is on track for a step change in performance. Key highlights have included:

• Operational performance is improving. Turnaround Plan is working.
• Pollution performance inproved 42% from 402 in 2020/21 to 234 in 2023/24 and on track for 224 in 2024/25
• Management changes to support turnaround and key capability shifts(e.g. control room, digitising sewer network, Clean Rivers & Seas), companywide engagement

The presentation document - entitled PR24 Business Plan Update September 2024 - says that during FY 2024 Southern Water successfully raised over £1.6 billion of debt (£1.092 bn) and equity (£550m) to support the Turnaround Plan, supported by funds managed by Macquarie Asset Management (MAM), further supporting the £1.1 billion of equity raised in FY2022.

Macquarie Asset Management, on behalf of its long-term investors including pension funds and insurance companies, announced in August 2021 it had agreed to acquire a majority stake in Southern Water and would invest over £1 billion in new equity to recapitalise the business. In August 2023 MAM agreed to invest an additional £550 million of equity into the Southern Water group.

Southern Water’s investor briefing document says its Business Plan resubmission require an equity raise of £650 miliion and debt financing of £3.825 billion in AMP8. According to the water company, an injection of £650 million of equity in 2027 would bring its gearing to below 70% for the remainder of the AMP8 plan.

In July 2024 Moody's Ratings placed the Baa3 backed and underlying senior secured ratings of Southern Water (Finance) I PLC (Southern Water) on review for downgrade following the publication of Ofwat's Draft Deternination on the company's AMP8 Business Plan - previously, the outlook was stable. Commenting in response at the time, CFO Stuart Ledger said:

"This change has no material impact on Southern Water, or SW (Finance) I plc, and as highlighted by Moody’s in their report, Southern Water has an excellent liquidity position with £513m of cash and deposits and £350m of undrawn credit facilities.

Thames Water risks “falling behind on its crucial equity raise”

Macquarie, has separately come in for significant criticism from a range of quarters for its stewardship of Thames Water between 2007 to 2017 which saw a massive increase in UK’s biggest water company’s debts.

Another report in the Financial Times over the weekend is separately highlighting that Thames risks “falling behind on its crucial equity raise.”

According to the FT, potential investors have warned that “they have been unable to access the books” and the water company “has not yet provided crucial financial details” which is “limiting their ability to submit offers by a key deadline.”