Macquarie to acquire majority stake in Southern Water

Macquarie Asset Management has agreed to acquire a majority stake in Southern Water, investing more than £1 billion to help turn the business around.

The firm said the capital injection will enable Southern to upgrade its network by investing £2 billion in underperforming assets during AMP7 – the equivalent of around £1000 per property in water company’s catchment.

Macquarie, which will invest on behalf of parties including pension funds and insurance companies, said the spending will allow repairs and improvements to assets that have been causing environmental harm.

In an open letter to Ofwat, the asset management group said its focus will be Southern’s environmental record. It plans to reduce pollution incidents by more than 50 per cent compared to 2019 in the coming four years and work to further reduce leakage, improve customer service and honour bill reductions set at PR19. Macquarie said none of the equity investment will be returned to the existing shareholders in Southern Water’s owner Greensands Holdings.

Leigh Harrison, head of Macquarie Infrastructure and Real Assets, said: “Southern Water needs significant investment to improve its operational and environmental performance, and financial health. Without it, the business will be unable to fulfil the expectations of the millions of customers that rely on its services each day or reduce its negative impact on the local environment.

He said the £1.073 billion investment will put Southern back on a stable footing that will enable “an ambitious multi-year transformation plan to make essential water and wastewater services in the south east of England more sustainable and resilient.”

Macquarie said Southern’s board and committees will retain sufficient independence to ensure they act in the best interest of its customers and stakeholders. It noted the recent crown court ruling against Southern, which said long-term investors should be more present and involved in company performance.

Southern chair Keith Lough, said: “We wholeheartedly welcome Macquarie Asset Management’s investors as long-term shareholders of our business. A £1 billion equity investment in Southern Water and its group strengthens our balance sheet to enable Southern Water to increase investment in our network and accelerate the transformation plans we have put in place.”

Chief executive Ian McAulay added that the investment with strengthen Southern’s ability to tackle the longer-term challenges posed by climate change and population growth, at the same time as being responsible custodians of rivers and seas in the south.

“With our long-term shareholders’ support, we are fully committed to protecting the local environment and providing the quality of service our customers deserve,” he stated.

“Importantly, this new investment will help Southern Water create around 1,000 new jobs and expand our apprenticeship programme, assisting the economic recovery of our region as we tackle the global Covid-19 pandemic.”