South East’s new bond bodes well for UK water sector

South East Water returned to the bond market today after a six-year absence, raising £130 million of inflation-linked notes due in June 2041. Barclays and RBS led the deal, which is the first of its kind from a UK water-only company since July 2008, and anticipates further issuance from the sector over the course of this year.

The borrower – owned by Australian private equity funds HDA and UTF – met with UK investors last week to test appetite for a minimum £100 million transaction, and a joint-lead confirmed to GWI that the final pricing level of Gilts +190bps was enough to ensure a marginal level of over-subscription, even at the larger size.

At Baa2/BBB, South East Water is the lowest-rated utility to access the inflation-linked bond market for some time, but the response to today’s deal bodes well for other companies looking to take advantage of the inverted inflation-linked Gilt curve.