The Birmingham-based group blamed the unfortunate timing of the capital restructuring plan on the need to obtain approval from shareholders at its annual general meeting on 30 July. The announcement pushed Severn Trent shares up 13p to 777.5p.
The capital reorganisation, similar to those made by Southern Electric and Yorkshire Water this year, completes a 10 per cent share buy-back plan announced last November. Southern carried out just over half the operation in December, buying back 5 per cent of its shares at a cost of pounds 121.5m. It followed a rethink after the company's planned takeover of South West Water was blocked by the Government.
Alan Costin, finance director, denied the latest move showed the company had room to pay the windfall tax. Research by Goldman Sachs estimated the company could pay between pounds 150m and pounds 264m of a total levy that could reach pounds 5bn.
"I don't think there's any connection between the capital restructuring and the windfall tax. The timetable for this is dictated by our agm date," Mr Costin said.
He said the capital restructuring was the most efficient way to hand back cash to investors, with the benefit that all shareholders would share in the gains. The move, which has to be carried out by 11 August, will cost the company pounds 134m based on Friday's closing share price of 764.5p.
The restructuring involves issuing shareholders with a new ordinary share worth 62p and a new class of "B" share worth 38p for every existing share with an issued value of 100p. Severn Trent will offer to buy back all the B shares, free of commission charges, through merchant bankers Schroders. The company will also consolidate the ordinary shares, giving investors 19 shares for every 20 held.
Mr Costin did not discount the possibility of further buy-backs after the windfall tax.