The Australian infrastructure investor Macquarie has confirmed it will inject a further £550m into the UK’s Southern Water in an attempt to turn around the troubled company.
The funds are intended to help Southern Water, which supplies Kent, Sussex, Hampshire and the Isle of Wight, to overhaul its leaky pipes and faulty sewage works.
Macquarie’s investment, which it first indicated it would make last month, extends its ownership of Southern Water, after it bought a 62% stake in 2021.
Martin Bradley, Macquarie’s head of infrastructure in the EMEA region, said: “When we invested in Southern Water in 2021, we said its operational transformation would take time. Whilst the company is making good initial progress, maintaining this momentum depends on significant and sustained investment in its infrastructure.”
Macquarie promised in 2021 to put the company “back on a stable footing” after it was fined a record £90m for deliberately dumping billions of litres of raw sewage off the north Kent and Hampshire coasts.
But last year Southern was accused of “environmental vandalism” after discharging raw sewage for more than 3,700 hours at 83 bathing water beaches during the first eight days of November alone.
Macquarie’s decision to take a stake in Southern marked a return to the water industry for the investment bank, which had left Thames Water saddled with debt when it sold its stake in 2017. Macquarie owned the UK’s biggest water supplier for just over a decade, in which the company paid out billions in dividends but paid next to no corporation tax.
Thames Water last month secured £750m of emergency funding from its shareholders and said it would need further funds in the years ahead. It had emerged that officials were drawing up contingency plans to temporarily renationalise the company.
In August 2021, Macquarie made a £1bn equity injection into Southern, putting more than £500m into the regulated company. It used the remainder to reduce leverage at Southern’s holding companies in a deal that diluted existing shareholders and was closely scrutinised by the water industry regulator, Ofwat.
Ofwat wrote to Macquarie after the investment, stating that “very profound changes” would be required at the company, which supplies water to 2.6 million customers, and provides wastewater services to 4.7 million customers.
Bradley said: “Instead of reducing our ambitions in the face of higher cost inflation and interest rates, we are backing Southern Water with additional equity, enabling it to invest circa £1bn more than the funding it received via the regulatory framework for the period.”
Bradley said the investment needed for Southern Water to achieve its ambitions would depend on “important decisions by its regulators.
“With rainwater runoff from highways and urban areas into the sewer network causing around 98% of all pollution events in the Southern Water area, we also need a broader conversation on how we progress long-term solutions that relieve pressure on the UK’s legacy storm overflow system,” Bradley added.
This year, Macquarie announced a record annual net profit of A$5.18bn (£2.8bn) for 2022, up 10% on the previous year, thanks in part to its commodity trading interests.
Its top commodity trader, Nick O’Kane, earned A$58m through a profit-share agreement, up from A$36m the year before. O’Kane’s earnings outstripped even the group’s chief executive, Shemara Wikramanayake, who made A$33m, still putting her ahead of some of Wall Street’s best-paid bankers.
Southern Water’s shareholders have not received dividends from the company since September 2017.
