Pennon rules out rights to fund South West Water

Pennon, the water supplier for Devon and Cornwall, allayed fears yesterday that it might be forced into a rights issue to fund its £800m capital investment programme from 2005 onwards.

There had been concern that the company, the owner of South West Water, would follow the lead of United Utilities, which launched a surprise £1bn rights issue to strengthen its balance sheet.

But Pennon said it was confident its debts, standing at £1bn, would be kept under control and would not exceed 60 per cent of its regulatory asset value by 2010. "On this basis the group does not expect to need additional equity funding for South West Water for the period," it said.

The reassurance came as Pennon reported a 6 per cent increase in first-half operating profits to £70.6m and a 4.8 per cent increase in the dividend, slightly above analysts' forecasts on both counts. South West Water's profits rose 4 per cent to £61m while the waste business Viridor increased profits by 26 per cent to £11m.

Pennon has applied for a 20 per cent rise in water bills in real terms for the 2005-10 period, taking the average domestic charge to £407.

The company is proposing to spend £790m-£860m on improvements and maintenance between 2005-2010. During the current regulatory period it is spending £650m, largely on measures to tackle waste water discharges and clean up its beaches. Most of the spending in the forthcoming period will be on mains renovation and capital maintenance.