Macquarie Group dives into Britain’s Southern Water, shrugs off Vampire Kangaroo claims

Macquarie Group says it ‘consulted extensively’ with regulators ahead of agreeing to buy a $1.9bn stake in Britain’s Southern Water Services.

The Southern Water Services transaction follows Macquarie‘s controversial investment in Thames Water. Picture: Bloomberg

Macquarie Group’s asset management arm says it “consulted extensively” with the relevant regulator, ahead of agreeing to buy a £1bn ($1.9bn) majority stake in Britain’s Southern Water Services.

The new deal follows Macquarie’s controversial investment in Thames Water, which the asset manager and investment banking giant sold out of in stages, with the final parcel being offloaded in 2017.

Under an agreement with Southern Water’s existing shareholders, Macquarie Asset Management will invest more than £1bn in new equity, on behalf of long-term investors. The funds will be used to recapitalise the business and implement “a more sustainable financing strategy” for Southern Water, Macquarie said in a statement.

Southern Water is a provider of essential water and wastewater services to millions of customers across the south and south east of England in Kent, Sussex, Hampshire, and the Isle of Wight.

Macquarie and its stable of infrastructure funds are scouring the globe for investment opportunities. The company last month said it would target a dividend payout ratio of between 50 and 70 per cent to “support business growth”, down from the previous target of between 60 and 80 per cent.

Macquarie’s statement on the Southern Water transaction said the capital injection would facilitate a significant upgrade to the target’s network, with £2bn to be invested over the next four years of the current regulatory period. The investment is earmarked to fix pipes, pumping stations, and sewers which are underperforming and “causing harm to the local environment”, Macquarie said.
The investment outlay equates to about £1000 for each property in Southern Water’s catchment area and will target additional resources to improve the company’s operational and financial performance and customer relationships.

But Macquarie faced a lot of political heat around its Thames Water investment as some accused the company of ploughing too much debt into the investment. The controversy saw Macquarie labelled the “Vampire Kangaroo”. Macquarie batted off the claims by highlighting its investment spend when its infrastructure fund owned Thames Water.

Macquarie Asset Management “consulted extensively” and presented an open letter to Ofwat, the regulator of water and wastewater services in England and Wales, as part of its efforts to secure the Southern Water deal.

“While we expect Southern Water will have made substantial progress in addressing its issues by the end of 2025, we acknowledge the business’ transformation will take time and that is why we intend to own our stake in Southern Water over multiple regulatory periods,” said Leigh Harrison, head of Macquarie Infrastructure and Real Assets.

Southern Water’s chief executive Ian McAulay said: “This investment ensures we will be able to spend more than £2 billion in the next four years improving the resilience of our existing network to reduce pollution incidents and leakages.

“It strengthens our ability to tackle the longer-term challenges posed by climate change and population growth, at the same time as being responsible custodians of Southern England’s rivers and seas.”

Macquarie’s asset management unit has $29.9bn to deploy in its private markets area, and in total the company has $563.5bn of assets under management.