UK’s Severn Trent to raise $1.2 billion to partly fund clean-up of rivers

(Reuters) – British water company Severn Trent is raising 1 billion pounds ($1.2 billion) in new equity to help finance an investment drive to reduce the release of untreated sewage into rivers and cut leaks from its network of pipes.

The performance of Britain’s water companies has become a hot political issue as customers and government have condemned their record of piling up debt and permitting shareholders and executives to profit at the expense of the ecosystem.

Severn Trent, whose shares were up more than 6% to 24.10 pounds as of 1126 GMT, said it planned 12.9 billion pounds in total expenditure across the next five-year regulatory period ending March 31, 2030 in a programme expected to create 7,000 jobs.

The water company – named after two of the country’s biggest rivers – also laid out plans to reduce spills and pollution in its five-year plan, though it gave no specific details about any works it plans.

CEO Liv Garfield said that “commitment to a sustainable future” was at the heart of the plan, ensuring “healthier rivers, to providing thousands of jobs, fewer leaks and a water supply ready for the impacts of climate change and population growth”.

The company also said that under the business plan calculated at 2022/23 prices, the average annual household bill will shoot up about 37% to 518 pounds by 2029/30.

The need to improve ageing infrastructure to lower the number of sewage releases, plus plan for population growth and the impact of climate change which is altering water flows, mean many of Britain’s dozen or so water companies need to invest heavily in their infrastructure.

In recent months Thames Water, Southern Water and Yorkshire Water have all raised additional funds from their shareholders.

Severn Trent’s equity increase, including raising 500 million pounds from Qatar’s sovereign wealth fund, is expected to represent about 19% of the firm’s issued share capital.

Qatar is currently the third-biggest shareholder in Seven Trent with a 4.6% stake, according to LSEG data.

Later in the day, a bookrunner on the 500 million pound offering said the books were oversubscribed multiple times and will be priced at 21.5 pounds per share.

The company said it remained on track to deliver at least 50 million pounds this year in customer outcome delivery incentives – a performance gauge used by regulator Ofwat.

JP Morgan analysts wrote in a note that Severn Trent’s announcement would have a “negative readacross” on the brokerage’s estimates for rivals United Utilities and Pennon ahead of their respective business plan announcements, and the market would expect equity increases from them too due to investment needs.

Pennon is due to provide a trading update next Thursday.

(This story has been corrected to fix the offering amount and change attribution to a bookrunner, not Severn Trent, in paragraph 11)

(Reporting by Aby Jose Koilparambil and Yadarisa Shabong in Bengaluru and Sarah Young in London; Editing by David Holmes, Elaine Hardcastle)