Britain’s water companies will borrow from the debt markets to help fund a multi-billion pound pledge to reduce the amount of raw sewage that flows into rivers and the sea.
(Bloomberg) — Britain’s water companies will borrow from the debt markets to help fund a multi-billion pound pledge to reduce the amount of raw sewage that flows into rivers and the sea.
Companies including Thames Water Utilities Ltd. will use both debt and equity capital markets to back the £10 billion ($12.4 billion) plan announced earlier on Thursday, a spokesperson for the industry body UK Water told Bloomberg News. The details of the business plans will be published in October, the person said.
Environmental campaigners have previously accused water companies of borrowing heavily to fund large dividends and executive bonuses instead of investing more heavily into the system’s often-antiquated infrastructure. Raising debt may become harder amid political pressure on the utilities and public anger over spilled sewage, however.
The companies that operate the privatized industry said they would be ramping up work intended to cut overflows by the end of the decade, calling it the “biggest modernization of sewers since the Victorian era.” That’s more than triple the £3.1 billion already earmarked from 2020 to 2025.
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Anglian Water Group Ltd. said it’s proposing a further £1 billion of investment in the period 2025 to 2030, which will be paid for by debt and shareholders in addition to the £200 million it is already investing in reducing storm overflow spills between 2020 and 2025, a spokesperson for the company told Bloomberg News.
“The debt will be funded primarily from bond finance sourced across a number of different capital markets, supported by term bank debt,” the person said.
UK water companies came under sustained criticism last summer over billions of liters of water leaking from pipes during a drought, after July saw the lightest rainfall in nearly a century. Several suppliers including Thames Water introduced hosepipe bans to reduce water use by preventing people from watering their gardens and washing their cars.
Since then, volatility in debt markets has meant that those companies have found enough support from bond investors who looked for havens in stormy markets. That’s because they benefit from population growth and a perception of security due to their status as critical infrastructure.
Read More: Investors Pile Into ‘Boring’ Utility Bonds Amid Banking Turmoil
But the increase in demand for financing means that bond investors will place greater scrutiny on the best and worst performers in the sector, said Johnathan Owen, a portfolio manager at TwentyFour Asset Management in London.
“There is quite a lot of dispersion in operational performance,” Owen said. “Naming and shaming will likely become the norm and those that fail to rectify performance will likely see some widening in spreads.”
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