Australia’s Macquarie buys £1bn majority stake in Southern Water
Investment comes just weeks after UK water company was hit with record fine for sewage pollution
Australian infrastructure bank Macquarie has taken a majority stake in Southern Water for more than £1bn, just weeks after the UK water company was fined a record £90m for deliberately dumping billions of litres of raw sewage in rivers and the sea.
Southern Water, which supplies water and treats sewage for 4.7m people in Kent, Sussex, Hampshire and the Isle of Wight, had been under financial stress and is among the most indebted companies in the sector. The deal will involve Macquarie investing more than £1bn of equity.
Macquarie’s investment will dilute the stakes of existing shareholders, including private equity firms, banks and infrastructure funds, by an undisclosed amount.
Southern Water said the deal would enable it to invest £2bn over the next four years, or about £1,000 per property in its catchment area, in improving sewage treatment works, pumping stations and pipes.
The company was fined £90m in July for dumping between 16bn and 21bn litres of sewage — the equivalent of 7,400 Olympic-sized swimming pools — between 2010 and 2015, in a case that the judge described as showing “a shocking and wholesale disregard for the environment”.
Another investigation by the Environment Agency is under way that covers pollution incidents after 2015, but it has not yet brought any criminal charges.
Macquarie is one of the world’s biggest infrastructure investors, with stakes in Cadent, the gas distribution network, and KCOM, a fibre telecoms business in the UK. It was the largest investor in Thames Water, Britain’s biggest water company, between 2006 and 2017 and was widely criticised for extracting millions of pounds in dividends as the utility struggled with leakages and pollution failures.
Macquarie and other investors have committed to a dividend yield of under 4 per cent over the next four years as part of the Southern Water deal.
Leigh Harrison, head of Macquarie Infrastructure and Real Assets, said: “Southern Water needs significant investment to improve its operational and environmental performance and financial health. Without it, the business will be unable to fulfil the expectations.”
Keith Lough, chair of Southern Water, said. “A £1bn equity investment in Southern Water and its group strengthens our balance sheet to enable Southern Water to increase investment in our network and accelerate the transformation plans we have put in place.”
Since 2007 Southern has been owned by a consortium of infrastructure investors, including UBS Asset Management and JPMorgan Asset Management. It has a complex multi-layered structure and its ultimate parent is Greensands Holdings, which is incorporated in Jersey.
UK regulator Ofwat said it welcomed the deal: “The new investor recognises that the current performance of Southern Water for its customers and the environment is not good enough and has committed to a substantial package of investment.”
Kate Bayliss, research associate at the department of economics at Soas University of London, said the news was “astounding”, given that Macquarie were the “architects of the huge financial extraction to shareholders during their 10 years as owners of Thames Water”.
“Water is an essential public service, which needs to be properly protected for the benefit of all users and not [used by] a private commodity to generate shareholder profit,” she said.