The Australian infrastructure investor Macquarie has taken a majority stake in Southern Water for more than £1bn, a month after the troubled UK utility was slammed with a £90m record fine for illegally pumping billions of litres sewage into rivers and coastal waters.
Southern Water provides services to 2.6m water customers and 4.7m wastewater customers across southern England in Sussex, Kent, Hampshire and the Isle of Wight.
Macquarie has pledged to pour in £2bn over the next four years of the current regulatory period to fix Southern’s creaking pipes, pumping stations, and sewers.
“We acknowledge the business’ transformation will take time and that is why we intend to own our stake in Southern Water over multiple regulatory periods,” said Macquarie’s head of infrastructure Leigh Harrison in a letter to the industry regulator Ofwat.
“Furthermore, historical environmental pollution incidents represented unacceptable failings by the company and culminated in a record fine in the recent crown court sentencing.”
“These cases and other areas of the company’s poor performance highlight the need for faster improvement and change.”
Southern was found guilty of releasing between 16bn and 21bn litres of sewage – the equivalent of 7,400 Olympic-sized swimming pools – between 2010 and 2015. A separate investigation by the Environment Agency is under way that covers pollution incidents after 2015.
Macquarie made several commitments to Southern Water including improving the water company’s environmental track record, reducing leaks, and ensuring affordable customer bills. Along with other investors it has committed to a dividend yield of under 4% over the next four years as part of the deal.
It is not the bank’s first foray into Britain’s controversially privatised water network. Macquarie was the largest investor in Thames Water for 11 years up to 2017, but was criticised widely for taking out millions in dividends while doing little to repair widespread leaks or stopping sewage entering river systems.
It was also slammed for its high-debt and low-tax business model, earning it the nickname ‘The Vampire Kangaroo’.
Southern is owned by a consortium of infrastructure investors, pension funds and private equity investors, according to its website, under the ultimate ownership of a Jersey-incorporated company called Greensand Holdings which sits above a myriad of entities, including a finance arm registered in the Cayman Islands tax haven.
Investors include UBS Asset Management and JPMorgan Asset Management, Hermes Investment Management and Whitehelm Capital. Cheung Kong Infrastructure and The Li Ka Shing Foundation are direct investors.
