Break-up looms as Hyder is swamped by a sea of debt

HYDER, the embattled Welsh water and power utility, warned yesterday that it may be forced to sell its electricity business and mount an emergency rights issue to prevent the entire group sinking under a sea of debt.

The warning came as Hyder, owner of Welsh Water and Swalec, announced a 60 per cent cut in its dividend and 1,000 job losses. Pennon, the owner of South West Water, added to the gloom across the sector by unveiling 200 job losses and a 25 per cent dividend cut for next year.

A wholesale break-up of Hyder would spell a humiliating defeat for its multi-utility strategy and put the chief executive, Graham Hawker, under intense pressure to quit.

However, Mr Hawker indicated yesterday that he had no intention of resigning, nor had the subject been raised by shareholders. "I like gardening, but I don't intend to take it up full-time" he said.

A strategic review of the group, being carried out by Dresdner Kleinwort Benson and JP Morgan, is due to be completed early in the new year. It will look at all options, including the scale of the rights issue and the extent of the disposals necessary to reduce Hyder's pounds 1.6bn debt mountain and rein in gearing of 190 per cent.

"We will look at everything," said Mr Hawker. "A disposal of Swalec will be on the list, among other things. If it is in shareholders' interests, we would do it."

Mr Hawker denied that disposing of Swalec, bought for pounds 821m in 1996, would amount to an admission of defeat. On the contrary, it would be a demonstration of "management action," he said. "I believe the multi-utility strategy has worked well. We have met all our targets, but we found ourselves with a balance sheet that cannot support all of the business."

He said that the regulatory regimes governing water and electricity had changed in a way that no one could have forecast, while the regulators themselves had "changed the goalposts".

Cuts in water and electricity bills next year will reduce Hyder's profits by pounds 70m, while it is facing a capital investment programme of pounds 1.7bn, of which pounds 1.3bn will be in Welsh Water.

The scale of the price curbs would have left Hyder's dividend barely covered by profits next year had it not taken the decision to slash the payout. Interest cover, meanwhile, is hovering uncomfortably close to the levels at which Hyder would be in default of the banking covenants in its loan agreements.

Hyder is also facing the prospect of the Welsh Assembly and the Environment Agency ordering an even bigger environmental programme than that which the water regulator, Ian Byatt, factored into his price review.

For that reason, Hyder said it would not be able to take a decision on whether to appeal to the Competition Commission over Mr Byatt's final price determination until January.

The grim news from Hyder and Pennon sparked a second successive day of heavy falls in water shares. Hyder fell 12.5 per cent to 308p, but Pennon was the most severely penalised, its shares tumbling 32 per cent to 497p. Analysts had not expected it to reduce its dividend, but Ken Harvey, the chairman, said it had no option faced with price cuts that would slice pounds 35m off profits next year and lower-than-expected profits growth in its non-regulated waste and contracting businesses.

Robert Miller-Bakewell, utilities analyst at Merrill Lynch, cut his ratings on half a dozen water stocks, including Anglian, Severn Trent, Pennon and Hyder, and said that water shares probably had a further 10 per cent to fall from their current levels.

Start your day with The Independent, sign up for daily news emails
ebooksNow available in paperback
Life and Style
The 67P/CG comet as seen from the Philae lander
scienceThe most important scientific breakthroughs of 2014
Arts and Entertainment
Ian McKellen as Gandalf in The Hobbit: The Battle Of The Five Armies
Arts and Entertainment
Sarah Koenig, creator of popular podcast Serial, which is to be broadcast by the BBC
tvReview: The secret to the programme's success is that it allows its audience to play detective
Ruby Wax has previously written about her mental health problems in her book Sane New World
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Marketing Services Manager - (communications, testing, DM)

£32000 - £35000 per annum + benefits: Ashdown Group: Marketing Services Manage...

Guru Careers: Finance Account Manager

£Neg. (DOE) + Excellent Benefits: Guru Careers: A Finance Account Manager with...

Ashdown Group: Java Developer - Hertfordshire - £47,000 + bonus + benefits

£40000 - £470000 per annum + bonus: Ashdown Group: Java Developer / J2EE Devel...

Ashdown Group: Direct Marketing Manager - B2C, Financial Services - Slough

£45000 - £55000 per annum + Benefits: Ashdown Group: An exciting opportunity h...

Day In a Page

Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Could cannabis oil reverse the effects of cancer?

Could cannabis oil reverse effects of cancer?

As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

The Interview movie review

You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
Serial mania has propelled podcasts into the cultural mainstream

How podcasts became mainstream

People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
Jesus Christ has become an unlikely pin-up for hipster marketing companies

Jesus Christ has become an unlikely pin-up

Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
Rosetta space mission voted most important scientific breakthrough of 2014

A memorable year for science – if not for mice

The most important scientific breakthroughs of 2014
Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

Christmas cocktails to make you merry

Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
5 best activity trackers

Fitness technology: 5 best activity trackers

Up the ante in your regimen and change the habits of a lifetime with this wearable tech
Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

Paul Scholes column

It's a little-known fact, but I have played one of the seven dwarves
Fifa's travelling circus once again steals limelight from real stars

Fifa's travelling circus once again steals limelight from real stars

Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
Frank Warren column: 2014 – boxing is back and winning new fans

Frank Warren: Boxing is back and winning new fans

2014 proves it's now one of sport's biggest hitters again
Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas