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LONDON - Pennon (LON:PNN) Group plc, a British water utility and waste management company, announced on Monday a fully underwritten rights issue aimed at raising approximately £490 million. The capital increase will issue 185,928,002 new ordinary shares at 264 pence per share, based on the ratio of 13 new shares for every 20 existing shares held by investors.
The rights issue price signifies a 35.2% discount to the theoretical ex-rights price, which was calculated using the closing price of 500.81 pence per ordinary share on January 28, 2025, the last business day before the announcement. This calculation also accounts for the 2024 interim dividend of 14.69 pence per share, which is not applicable to the new ordinary shares.
Pennon’s move comes after accepting the final determinations from Ofwat, the water services regulation authority, for the K8 regulatory period extending to March 2030. The company has outlined a comprehensive financing package designed to support a significant increase in investment, projecting a record £3.2 billion in capital expenditures. This investment is expected to drive growth in the company’s Regulatory Capital Value (RCV) by at least 34% while targeting a return on regulated equity of approximately 7% over the K8 period.
The company has stated that the funds raised will help maintain sustainable gearing levels, adhering to its long-term gearing policy of 55-65% for its regulated water businesses, which is consistent with maintaining an investment-grade credit profile.
Additionally, Pennon has announced a revised dividend policy, rebasing the total dividend amount for the year ending March 31, 2024, to reflect the impact of the rights issue. The rebased dividend per share is expected to grow by CPIH inflation from the current financial year ending March 31, 2025, through to March 31, 2030.
The rights issue is backed by Barclays (LON:BARC) Bank PLC and Morgan Stanley & Co (NYSE:MS). International plc, acting as underwriters, joint global coordinators, and joint bookrunners. They will also serve as joint sponsors to the company.
A prospectus detailing the rights issue is set to be published on Pennon Group’s website and will be submitted to the National Storage Mechanism for public access. The rights issue is subject to the terms and conditions outlined in the prospectus.
The announcement of the rights issue, which contains inside information, was made by Andrew Garard, Group General Counsel and Company Secretary of Pennon. This move is based on a press release statement and is intended to provide Pennon with the financial flexibility to invest in its infrastructure and growth over the coming years.
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