South West Water owner Pennon Group PLC (LSE:PNN, OTC:PEGRY) is tapping shareholders for £490 million in additional cash while at the same time raising bills and promising to pay out more in dividends.
Pennon added it has agreed to the new five-year price regime laid down by regulator Ofwat last year that will see £3.2 billion invested in infrastructure to improve South West's dire record on sewage spillages.
SWW, which serves around 1.8 million customers, is allowed to raise bills by 23% over the five years under Ofwat’s proposals.
Pennon said the equity raise will provide it with ‘appropriate and sustainable gearing throughout the five years and maintain a ratio of debt to equity at 55-65% for the regulated water businesses.
Crucially, it said this will allow it to keep an investment-grade credit profile with group leverage being a few percentage points higher.
On dividends, Pennon said these would be adjusted for the deep discount price on the rights issue and then grow in line with CPIH inflation.
Terms of the rights issue are 13 for 20 at 264p for a new share.
In the market today, the shares were trading at 520.5p, up 1%.