Pennon shares fell 22.4% after the utility announced a fully underwritten £550 million rights issue and a lower dividend. The plan would help fund more infrastructure spending as the company deals with £4.51 billion in debt.
By 1037 GMT on Wednesday, Pennon's shares had fallen to 350.8 pence, their lowest level since August 2011. The British water utility confirmed a fully underwritten £550 million offer in its rights-issue announcement. The stock was on track for its steepest one-day drop since 1999.
The capital raise is part of new CEO Keith Haslett's plan to reshape Pennon. Haslett took the top job in April. He also plans to sell Pennon Power, the company's renewables investment arm, and reduce its £4.51 billion debt burden. The sale is proposed; it has not happened.
Pennon's offer comprises 220,257,997 new shares, with admission to trading expected on 12 October 2026. Shareholders are offered seven new shares for every 15 existing shares.
Pennon priced the new shares at 250 pence each, a 35.5% discount to the theoretical ex-rights price. It expects to raise about £530 million after transaction costs. The new shares will make up approximately 31.8% of the enlarged share capital, and the offer is larger than many analysts expected.
The company says the proceeds will help fund about £1 billion in additional investment in regulated water assets during AMP8. That would bring planned spending to £3.6 billion, according to a Reuters investment report.
Shareholders are being asked to accept a costly reset.
Pennon plans to pay about £125 million in total dividends for the fiscal year ending March 2027, down from £138 million in fiscal 2026. Reuters reported that, after accounting for the new shares, the reduction amounts to an approximately 30% cut in dividend per share. For investors who rely on dividend income, the company is putting investment and balance-sheet repair ahead of its previous payout. That contrasts with companies raising dividends, as in this report on a dividend increase.
South West Water received a record £7.9 million fine over repeated sewage discharges, adding to the environmental pressure surrounding Pennon's water business.
Pennon is not the only water company under pressure. Britain's water industry faces scrutiny over environmental breaches, large dividend payments and rising customer bills. Last month, Prime Minister Andy Burnham said he would legislate to repeal the ban on public ownership of water companies in response to the sector's problems. The ban has not been repealed.
Analysts say execution will decide whether the plan works. Jefferies analyst Ahmed Farman said success depends on an operational turnaround and regulatory approval for the additional capital spending. J.P.Morgan analysts estimated that the rights issue and dividend cut would leave Pennon with a dividend yield of about 5%. They also warned that investors may demand a higher yield. CEO Keith Haslett said the funding plan is intended to improve outcomes for customers and support growth with a stronger balance sheet, according to Proactive Investors.
A rights issue raises money by offering shares to investors at a set price. But a discount alone does not guarantee that Pennon's investment program will turn the business around. The company has set out its funding needs, a planned asset sale and a lower payout. Its operational performance and regulatory approval remain key conditions.
