Not-for-profit Welsh Water has successfully raised £600 million through a new bond issue, marking its first bond issuance in three years. The funds will be pivotal in financing an extensive capital investment programme over the next five years.
This latest bond, one of the largest in the UK bond market this year, carries a fixed interest rate of 5.75%, which is slightly above the UK Government’s benchmark gilt rate by 0.138%. The sustainability bond has a 20-year term and will aid in both financing Welsh Water’s upcoming investment plans and refinancing existing debt.
Welsh Water’s net debt, including bonds and other borrowings, currently stands at £4.3 billion. Of this, £3.3 billion is accounted for by bonds. Over recent years, the company’s gearing ratio against its capital value of £7.5 billion has decreased from 93% in 2021 to the present 60%, making it one of the least leveraged among UK water companies.
The funds raised will support Welsh Water’s record £4 billion investment package for the 2025-2030 regulatory period, with £2.5 billion specifically allocated to environmental improvements. ‘We have ambitious plans for the next five years to invest a record £4 billion to improve our services and protect the environment,’ said Mike Davis, Welsh Water’s chief financial officer. ‘The money raised will be a key part of our plans for the future, so that we can deliver high-quality services for our customers through continuous improvements.’
Welsh Water’s debt portfolio includes index-linked bonds tied to the retail prices index measure of inflation. Although inflationary pressures led to an exposure peak of around 13.5% last spring, this has since significantly declined. Furthermore, the company employs hedging strategies through swaps to manage these pressures.
Serving three million people across most of Wales and parts of Herefordshire, Welsh Water has a substantial impact on the Welsh economy, amounting to £1 billion annually. Employing nearly 4,000 people directly and supporting an additional 5,000 jobs through its supply chain, the company continues to be a major economic driver in the region.
Welsh Water’s successful bond issue not only underscores its robust financial standing within the water sector but also sets the stage for continued investment in essential services and environmental sustainability over the coming years.