Macquarie Asset Management Recaps Southern Water Services in a Bid to Improve Operations

Posted on 08/09/2021


Macquarie Asset Management reached an agreement to acquire a majority stake in Southern Water Services Limited. Currently the largest shareholders in Southern Water Services are JP Morgan Asset Management (40%), UBS Asset Management (22%), Hermes Infrastructure Funds (21%), and Whitehelm Capital (8%). In 2020, Southern Water Services pleaded guilty to 51 offences related to dumping untreated sewage into the sea and was fined £90 million. Macquarie has returned to the U.K. water industry with its recap of Southern Water. Macquarie exited its water investment in Thames Water (Kemble Water Limited) in 2017 for an estimated £1.35 billion.

Southern Water provides essential services to 2.6 million water and 4.7 million wastewater customers across Kent, Sussex, Hampshire, and the Isle of Wight.

Under the agreement reached with Southern Water’s existing shareholders, Macquarie Asset Management will invest, on behalf of long-term investors including pension funds and insurance companies, over £1 billion in new equity to recapitalize the business and implement a more sustainable financing strategy for Southern Water. The capital injection will enable Southern Water to invest significantly to upgrade its network with £2 billion to be invested over the next four years of the current regulatory period to fix the pipes, pumping stations, and sewers which are underperforming and causing harm to the local environment.

This major investment program is equivalent to approximately £1,000 for each property in Southern Water’s catchment area and will allow Southern Water to access the resources it needs to improve its operational and financial performance, financial resilience, and relationship with its customers. Macquarie Asset Management has consulted extensively with Ofwat, the regulator of water and wastewater services in England and Wales. In a letter published on Monday, Ofwat warned Macquarie that “very profound changes” would be required at Southern Water.

JPMorgan

In October 2007, infrastructure funds led by JPMorgan Chase & Co purchased Southern Water from Royal Bank of Scotland for about £1.3 billion. JPMorgan paid £360 million for a 32% stake in Southern Water and Australia’s Challenger Infrastructure Fund £300 million for 27%. The other investors in 2007 were a group of seven Australasian pension funds advised by Access Capital, which had an 18%, UBS had an 18%, Hermes at 4%, and Consensus Business Group at 1%. Royal Bank of Scotland bought a controlling stake in Southern Water in 2003.

Open Fiber

On August 5, 2021, Macquarie Asset Management finalized an agreement with Enel to acquire a 40% equity interest in Open Fiber for €2.12 billion. Open Fiber operates Italy’s largest fibre-to-the-home network, with more than 12 million households passed in more than 180 urban centres and more than 2,300 rural municipalities across the country. Open Fiber is also leading the roll out of ultrafast broadband throughout Italy, aiming to pass more than 19 million households with its wholesale-only network. Macquarie Asset Management will partner with CDP Equity which will own the remaining 60% equity interest in Open Fiber following the completion of the sale of Enel’s entire stake in the business. Macquarie Asset Management has been investing in Italy since 2002.

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