The utilities were privatised in a strong position, but regulatory demands for huge capital expenditure programmes mean they will be more active in the equity and bond markets.
Simon Batey, finance director at United, says: ‘The privatised utilities had strong balance sheets with little debt. We are now at the stage where future capital programmes will require an extension of our capital base, with both equity and debt to fund them.’
The proceeds of the rights issue are set to help fund the capital expenditure programmes of its water and electricity distribution businesses, which analysts expect to total around £5.5bn over the next seven years.
According to industry analysts, the move by United was a deliberate attempt to catch the market unawares with its rights issue before uncertainty over regulatory reviews caused equity risk premiums to rise.
‘It took us by surprise as we thought the company would allow its net debt levels to trend upwards over time,’ said Clive Roberts, utility analyst at Charles Stanley Equity Research.
‘United’s management believes that being the first utility company to come to the market gives it a competitive advantage.’
And the company will explore other means of meeting the huge regulatory financial demands.
It announced that it would be asking water regulator Ofwat to sanction an increase in water bills from April next year, as well as taking on more debt. ‘We expect to raise at least a billion pounds of debt over the next couple of years. The rights issue will strengthen our credit profile,’ Batey added.
The company is offering shareholders the opportunity to buy five new shares for every nine they currently have at 330p each, compared with their recent market price of under 550p. Non-shareholders have until August 20 to buy into the rights issue.
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