Rights Issue in Pipeline at Water Firm?

Article excerpt

Byline: Lucy Farndon

UNITED Utilities could be forced into a rights issue unless water regulator Ofwat tweaks its provisional ruling on price charges, a source close to the company warned.

The company, which supplies 7m customers in the northwest of England including Liverpool and Manchester, believes it would either have to raise fresh funds, cut its dividend or reduce its investment programme.

A rights issue would likely be for 'several hundred million pounds', in order to protect the firm's credit rating. Other options include saving [pounds sterling]120m a year by axing the dividend, slashing capital expenditure on its water pipes and networks or trying to raise more debt. It may try to appeal to the Competition Commission.

Shares in listed water groups United Utilities (down 0.3p at 451p) and Severn Trent (3.5p to 971p) have been under pressure since Ofwat published its draft recommendations for the five-year pricing plan at the end of July.

Some analysts and investors fear that the watchdog's proposals are just not viable for the water industry.

They argue the plan could jeopardise future funding because few will want to invest in debt or equity if the returns are too low. …