Pennon buys SES Water in £380mn deal

Keep knowledgeable with free updates

Merely signal as much as the Utilities myFT Digest — delivered on to your inbox.

FTSE 100 water group Pennon has purchased Sutton and East Surrey Water from its Japanese house owners in an indication of the continued urge for food for UK water property regardless of considerations over their efficiency.

Pennon Group, which owns South West Water, stated it had acquired SES Water, which provides 750,000 clients in south-east England, and different ancillary companies from Sumitomo Company and Osaka Gasoline for a complete enterprise worth of £380mn. Exeter-based Pennon additionally introduced a £180mn fairness capital increase on Wednesday, to maintain the enlarged group’s leverage inside a gearing vary of 55 to 65 per cent.

Pennon stated it was paying £89mn for the fairness, whereas SES’s web debt stood at £291mn.

The sale comes regardless of mounting considerations over the UK’s privatised water monopolies, which have been accused of paying out extreme dividends and pay packages whereas presiding over extreme leakage and air pollution failures. Ofwat, the regulator, can be involved over the weak spot of a number of firms’ stability sheets together with SES Water.

SES’s Japanese house owners are understood to not have wished to place fairness into the enterprise and as an alternative determined to promote, the Monetary Occasions reported beforehand. The corporate is one in every of six water-only suppliers in England, with sewage remedy providers supplied by Thames Water and Southern Water.

Shares in Pennon fell 1.23 per cent in early morning buying and selling on Wednesday earlier than paring these losses. Martin Younger, analyst at Investec, stated it was “believable that the necessity for monetary strengthening will see adjustments in water firm possession”.

He added that the deal was “in step with Pennon’s technique” and adopted the earlier acquisitions of two different water firms, Bournemouth Water and Bristol Water.

The 17 non-public water firms in England and Wales paid out £1.4bn in dividends within the yr to March 2023, whereas debt rose from £60bn to £68bn, about half of which was tied to inflation.

Water firms together with Thames Water, the most important, are asking shareholders to take a position fairness, many for the primary time for the reason that regional water monopolies have been privatised 34 years in the past. They’re additionally asking regulator Ofwat to approve important will increase to buyer payments by 2030, with a remaining resolution as as to if these will likely be permitted anticipated by the top of this yr.

Pennon has requested Ofwat if it may well increase payments by 32 per cent by 2030, from a mean of £476 per family now to £720 a yr, earlier than inflation. The payments can be even greater with no taxpayer subsidy of £50 per South West Water buyer launched in 2013. The federal government launched the measure as a result of, though South West Water serves simply 3 per cent of the inhabitants, it’s chargeable for defending a couple of third of the nation’s coastal waters.

Final yr, South West Water was fined £2.1mn by the UK’s Atmosphere Company for air pollution offences throughout Devon and Cornwall spanning 4 years. South West Water is one in every of six firms being investigated over considerations that it might be breaching sewage rules, together with potential unlawful discharges at greater than 2,000 sewage remedy works.  

The utility can be being investigated by Ofwat over the accuracy of data it supplies on leakage and water consumption.

Susan Davy, chief government of Pennon, stated the acquisition was a “implausible match for Pennon as we additional broaden our presence in water provide throughout southern England, constructing on our profitable related acquisitions of Bournemouth Water and Bristol Water alongside the adoption of water provide within the Isles of Scilly.”

The deal is topic to approval by the UK competitors regulator and comes after Pennon reported a pre-tax lack of £8.5mn for the yr ending March 31 final yr however raised its dividend by 10.9 per cent to £112mn.