Embattled South East Water abandons bond issue as investors flee sector

One of Britain's most troubled water suppliers has called off plans to raise hundreds of millions of pounds from investors amid the ongoing regulatory and political uncertainty engulfing the industry.

Sky News has learnt that South East Water aborted immediate plans for a bond issue earlier this week after attracting insufficient demand from prospective backers.

Industry sources said that South East Water, which over the last year has become a focus for public and political anger at the sector after leaving thousands of customers without running water, had intended to secure in the region of £200m to fortify its balance sheet.

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The company, which recently parachuted in a new leadership team to rebuild its credibility and improve its operating performance, is understood to have told debt investors that the volatile political and regulatory backdrop had contributed to a lack of demand for the new financing.

Earlier this year, South East Water was ordered by the industry regulator, Ofwat, to spend more than £30m on improvements in the wake of repeated supply failures.

The company serves about 2.2 million customers in Kent.

Partly owned by the NatWest Pension Fund, South East Water has debts of about £1.7bn.

It is now likely to face questions about how it plans to fund its ongoing operations and infrastructure investment.

A source close to the company said South East Water had adequate liquidity with a backstop facility of several hundred million pounds in place.

They added that this week's roadshow amounted to a market-sounding exercise and that the company continued to evaluate options for future debt-raising activity.

One source said the abandoned bond issue had been assembled by bankers at NatWest and would have involved borrowing money over a five-year period.

The deal, which was not formally launched when the company's board decided not to proceed, was designed to strengthen South East Water's finances two months after it secured £200m of new liquidity that was intended to support future bond issuance.

The chairman and chief executive of South East Water were axed earlier this year after facing incredulity and anger from MPs over their handling of the crisis at the company.

It has now installed a new management team, including John Halsall, an experienced and respected water industry figure, as its chief executive.

The disclosure of South East Water's proposed debt raise comes amid growing uncertainty about the privatised industry's future.

Andy Burnham, the new prime minister, has spoken of his desire for "greater public control" over water companies but has yet to provide further details of his ambition.

The fog hanging over the sector has been most pronounced at Thames Water, which has been teetering on the brink of collapse for more than two years.

One option for the government is to place Thames Water, which has more than 15 million customers, into a process called a special administration regime (SAR), a form of temporary state supervision which has never been used before at a water company.

Despite reports that this could happen within days of Mr Burnham becoming prime minister, the immediate prospects of such a move have receded as new ministers and officials have digested the financial and operational implications of doing so.

Angela Eagle, the new environment secretary, suggested last week, that Britain's insolvency laws could be amended to make a Thames Water SAR more easily achievable.

Although the abandonment of South East Water's bond issue hints at growing investor anxiety about the sector, a number of other water utilities have been able to attract new investment this year - albeit at bargain basement prices.

In March, EQT, the Swedish-based investment giant, bought a big stake in the parent company of Yorkshire Water, although the Financial Times reported in July that the deal had taken place at a discount to the value of its regulated assets.

The government has signalled plans to adopt the recommendations of a review conducted last year by Sir Jon Cunliffe, which called for the establishment of a powerful new water regulator.

However, details of the overhaul, which will include the abolition of Ofwat, remain sparse.

South East Water and NatWest both declined to comment on Thursday.

(c) Sky News 2026: Embattled South East Water abandons bond issue as investors flee sector