At the time of writing, the Macquarie Group Ltd (ASX: MQG) share price is struggling after news of a $2 billion investment in the UK.
What has Macquarie done?
The investment bank announced that Macquarie Asset Management (MAM) has reached an agreement to acquire a majority stake in Southern Water Services in the UK.
The Southern Water Services plan
Macquarie outlined that this business provides water services to 2.6 million and wastewater services to 4.7 million customers in Kent, Sussex, Hampshire and the Isle of Wight.
MAM will invest, on behalf of its long-term investors including pension funds and insurance companies, over £1 billion in new equity (almost $2 billion) to recapitalise the business and implement a more sustainable financing strategy for Southern Water.
This money will allow Southern Water to invest "significantly" to upgrade its network. Over the next four years of the current regulatory period, Southern Water will invest £2 billion to fix pipes, pump stations and sewers. These infrastructure items are reportedly "underperforming" and are causing harm to the local environment.
MAM outlined the size of the investment, saying it equated to £1,000 for each property in Southern Water's catchment area. The capital will allow the business to improve its operational performance for stakeholders and increase the financial performance and resilience for shareholders.
Macquarie makes commitments
MAM has had long discussions with Ofwat, which is the regulator of water and wastewater services in England and Wales.
The investment bank noted that Southern Water has one of the worst track records in the UK water sector. It aims to reduce pollution incidents by more than 50% over the next four years. It is committed to significantly improving Southern Water's environmental track record with a zero-tolerance mindset.
Another part of the plan is to reduce leaks through the significant investment programme.
The next commitment was ensuring affordable customer bills. The commitment was that, in total, average water and wastewater customer bills don't rise by more than inflation. That's in addition to honouring an existing £123 million customer rebate due to historical incidents.
Finally, Southern Water wants to offer better customer service by fixing the issues that customers are complaining about, and increasing the capacity to handle complaints.
Macquarie commentary
Leigh Harrison, the boss of Macquarie Infrastructure and Real Assets, said:
Southern Water needs significant investment to improve its operational and environmental performance, and financial health. Without it, the business will be unable to fulfil the expectations of the millions of customers that rely on its services each day or reduce its negative impact on the local environment.
This major £1 billion equity investment by one of our long-term infrastructure funds will help put Southern Water back on a stable footing and enable an ambitious multi-year transformation plan to make essential water and wastewater services in the South East of England more sustainable and resilient.
While we expect Southern Water will have made substantial progress in addressing its issues by the end of 2025, we acknowledge the business' transformation will take time and that is why we intend to own our stake in Southern Water over multiple regulatory periods.
Macquarie share price snapshot
Whilst Macquarie shares haven't done much today, it's up 8% over the last six months and up more than 25% in the last year.
