UK water company Severn Trent to raise £1bn to tackle pollution

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UK water company Severn Trent will raise £1bn through a new share issue to tackle sewage spills and pollution, months after it was one of four companies fined after making thousands of spills between 2018 and 2022.

The company said the share issue would raise £500mn from institutional investors, another £500mn from the Qatar Investment Authority and up to £7mn from retail investors. An unspecified number of company directors would buy shares worth £275,000 each.

The cash will support a five-year, £12.9bn spending plan, including £5bn on “enhancing capacity and service beyond current levels” to cut overflow spills and pollution by 30 per cent each, with a 16 per cent reduction in leakage.

It said the plan would generate 7,000 jobs in the Midlands region of England and included a £550mn package “to support 693,000 customers who might otherwise struggle to pay their bill”.

The announcement comes as water companies prepare to submit their draft business plans to water industry regulator Ofwat on Monday, which will seek sharp bill increases to pay for investment in infrastructure including reservoirs, water transfer pipes and sewage treatment plants. 

Water bills average £448 per household but under the plans would rise by hundreds of pounds by the end of the decade. The exact increase is not yet known and Ofwat is not due to approve the plans until December next year.

The UK’s Environment Agency fined Severn Trent and three others £94mn at the end of May, including a £90mn fine for one company, Southern Water.

Campaigners say the EA is critically underfunded and many more companies should have been prosecuted for discharging sewage into rivers and the sea on more than 300,000 occasions in 2022 alone.

Equity injections have been rare in the 34 years since the regional water monopolies in England and Wales were privatised. But in the past three years Anglian Water, Southern Water, Thames Water and Yorkshire Water have all received cash from their shareholders.

Severn Trent’s share issue will be led by Bank of America Securities and Morgan Stanley, with Citigroup as joint bookrunner and Rothschild as financial adviser.