Southern Water has announced that it needs to raise £550 million from its shareholders in a bid to stabilise its financial footing.
The firm’s unexpected call for funding follows a ratings downgrade which affected the company’s dividends, triggering an industry-wide response.
Impacts of ratings downgrade
A global ratings agency, Fitch Ratings, was instrumental in the reshuffling of Southern Water’s fiscal plans after it demoted the company’s £5.2 billion debt to a notch above junk bond status.
The agency termed the downgrade as a “trigger event” which would prohibit Southern Water from disbursing dividends.
Ofwat’s role in dividend control
Under industry regulations, Ofwat, the water services regulation authority, has the power to intervene when water companies’ ratings drop to a predetermined level.
The aim of such intervention is to halt the payment of dividends to shareholders, ensuring financial sustainability of the company.
Reason behind downgrade
Explaining its decision, Fitch revealed that it had downgraded Southern Water to BBB from BBB+ due to concerns over the firm’s ability to meet its investment commitments through 2025.
The group’s significant debts, they said, were exacerbated by inadequate cash flow and high interest rates, which further strained the company’s finances.
As Southern Water navigates these choppy financial waters, the coming months will reveal the effectiveness of its plan to shore up its finances and restore confidence among its shareholders and customers.
Tackling storm overflows
Here on the Isle of Wight, Southern Water have announced a multi-million pound investment as part of £50m project to mark the beginning of the end for storm overflows.
Source: The Times
Image: swanky fella under CC BY 2.0
