Moody’s has cut Southern Water’s debt rating and signalled further downgrades ahead as analysts warn a deteriorating sector outlook leaves the need for more supportive rules.
Southern Water debt on Wednesday was reduced to junk status by credit rating agency Moody’s, which also cut its view of the sector’s regulatory “stability and predictability”.
“We see these rating conclusions as a strong signal to Ofwat of the need to strengthen the final determination package,” Citigroup analysts said in response.
This is set to be laid out next month, setting in stone how much water firms will be able to charge and have to invest over the coming five years.
“Ofwat's draft determination would, if not materially changed at the final determination stage [...] result in severe performance penalties and total expenditure allowances below the level needed to fund Southern Water's investment programme,” Moody’s had said.
“Attractive” rules were needed to “ensure listed companies [were] financeable” as a result, Citi added.
Shares in Pennon Group PLC (LSE:PNN, OTC:PEGRY) and Severn Trent PLC (LSE:SVT) climbed on Thursday, following United Utilities Group PLC (LSE:UU.) higher after a dividend hike in results early on.