Yorkshire Water raises £500mn from shareholders to shore up finances

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Yorkshire Water has raised £500mn from shareholders, the latest sign of the UK’s debt-laden water companies racing to shore up their balance sheets.

Yorkshire Water, which serves 2.3mn households and 130,000 businesses, said in a statement that the equity injection, which came this week, was “better than anticipated”.

The fundraising is part of a plan outlined in October to inject £940mn in equity over five years. Shareholders include Singapore’s sovereign wealth fund GIC, German asset manager DWS and private equity group Corsair Capital.

It came on top of £700mn raised since February from bondholders, the water utility said.

“We understand the importance of continuing to have robust financial structures in place and we’ve been significantly improving our financial position over the past six months with a stronger and more resilient balance sheet and we have the appropriate liquidity to meet future cash needs,” Yorkshire Water said.

The fundraising comes as it emerged on Wednesday that the UK government discussed a temporary nationalisation of Thames Water, the utility serving London and the south-east of England.

Thames Water, whose chief executive Sarah Bentley resigned on Tuesday, is seeking cash from shareholders to tackle rising interest payments and operating costs. The company has received £500mn out of the £1.5bn it requested a year ago. Its new interim chief executive has said that the company now may need even more.

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.

After being privatised with no debt in 1989, the water companies have racked up more than £60bn in borrowings. Rising inflation has pushed up financing costs as well as the price of energy, labour and chemicals. The companies are also under pressure to invest in tackling sewage overflows.

Last year, water regulator Ofwat requested Yorkshire Water’s owners to inject £940mn to pay down debt over five years after warning over a high level of debt. The company’s debt-to-equity ratio — or gearing — stood at 77 per cent as of March 2021.

As a comparison, Southern Water, which was on the brink of bankruptcy in 2021 and was taken over by the Australian asset manager Macquarie, had a 71 per cent debt to equity ratio.

Ofwat warned that Yorkshire’s gearing exceeded 100 per cent when including net financial derivatives and pension obligations. Yorkshire Water’s gearing as of 30 September, 2022 was at 73.5 per cent, the company said on Thursday.

In November, credit agency S&P Global revised its outlook on Yorkshire Water’s debt to negative because of “operating and financing cost pressure”.

DWS and GIC declined to comment. Corsair Capital did not immediately comment.