Northumbrian avoids rights issue

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The Independent Online

Northumbrian Water ruled out a rights issue yesterday as it said the £200m refinancing of the Kielder reservoir water transfer scheme was nearing completion.

John Cuthbert, the managing director, said that together with the provisional go-ahead from the water regulator Ofwat to raise prices by 10 per cent next April, the Kielder refinancing would strengthen the company's credit quality. "The idea that we were under pressure and likely to go for a rights issue some time in 2004 was always nonsense, and that remains the case today," he said. Mr Cuthbert added that the price rise, worth about £35m, would hopefully trigger a re-rating of its £1.7bn of debt. At present, it is only one notch away from junk bond status.

Analysts at UBS said Northumbrian's capital structure remained "unsustainable" and, without changes to it, the prospects of a re-rating remained uncertain. The Kielder refinancing will enable Northumbrian to raise £200m-£220m from the debt markets by securitising the income it will receive over the next 30 years from the Environment Agency to control water levels in the Tyne and Tees, using the vast resources of the reservoir. This will replace some of the short-term debt used to finance the buyout of Northumbrian from its former owner Suez earlier this year.

The company reported a 55 per cent drop in pre-tax profits to £15.5m for the period to 30 September.

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