Tapping the market

28 July 2003

Unlike rivals that have geared up heavily, the UK utility wants to fund itself with a big slug of equity. This only works if the regulator allows it a higher return at the forthcoming price review.

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United Utilities is to raise £1bn to fund capital expenditure in what is the UK's biggest rights issue so far this year. The utility is selling the new shares at 330p each, a discount of 43% to Friday's closing price of 576p. The issue has not been underwritten.

UU said the cash raised through the fivefornine issue would be used to fund growth in its regulated businesses. The company, which is spending almost £1bn this year and next on capital expenditure, estimates that it will have to spend at least a further £3.5bn over the next review period, between 2005 and 2010.

UU said that if it did not raise equity, it would have to allow gearing to rise to levels that would be inconsistent with its equitybased funding structure. The group wants to keep its net gearing at about 55% of total capital over that period.

The rights issue will be in two phases, with half the proceeds received in September and the rest in June 2005.

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