Pennon Group has launched a deeply discounted, fully underwritten rights issue and rebased its dividend to fund around £1bn of additional investment in its regulated water businesses.

Pennon Group (LSE:PNN), the FTSE 250 owner of South West Water, is in the middle of a roughly £550m rights issue announced on 7 October 2026 alongside a strategic update from chief executive Keith Haslett. The fundraising, fully underwritten by Barclays and Morgan Stanley, is designed to support a substantially larger investment programme over the current regulatory period, known as AMP8, which runs to March 2030.

Terms of the offer

Pennon (LSE:PNN) is offering 220,257,997 new shares at 250p each on the basis of seven new shares for every 15 held at the record date of 6 October. The price represents a 44.7% discount to the closing price of 452p on 6 October and a 35.5% discount to the theoretical ex-rights price of 387.73p. The new shares will make up about 31.8% of the enlarged share capital, and net proceeds are expected to be around £530m.

Shares began trading ex-rights on 12 October, with nil-paid rights dealing from the same day. The acceptance deadline for CREST and certificated holders is 11:00am on 26 October, with fully paid new shares expected to begin trading on 27 October. All directors who hold shares have irrevocably committed to take up their rights in full. The company said the necessary shareholder authorities were already granted at its 2026 annual meeting.

Movements on the register have followed. A filing on 15 October showed Barclays' interest, held largely through financial instruments, rising to 6.42% of voting rights from 5.50% after crossing a threshold on 13 October.

A bigger investment plan

The strategic update put planned AMP8 capital investment in the regulated water businesses at about £3.6bn, roughly £1bn more than the original plan based on Ofwat's final determination. Pennon expects regulatory capital value (RCV) growth of more than 40% across the period, equivalent to a compound annual rate of about 7%, compared with 34% at the start of AMP8.

Part of that depends on Ofwat's cost change process. The regulator's draft determination in August provisionally allowed £230m in nominal terms, about 76% of Pennon's request, covering asset health in water and wastewater plus growth. Pennon submitted representations on 24 September, and a final determination is expected by 15 December. The company estimates a further £170m or so could come through the 2027 and 2028 cost change rounds, subject to approval.

Gearing in the regulated businesses is targeted at no more than 65% of RCV, within a 55%–65% long-term policy, with group gearing unlikely to exceed about 70%. Alongside the equity raise, the funding plan includes ordinary debt issuance, reinvested efficiencies and a proposed sale of Pennon Power.

Dividend rebased

Income investors face a reset. The total dividend for the 2026/27 financial year is being rebased to about £125m, compared with £138m for 2025/26, which the company expects to equate to roughly 18p per share. After adjusting for the rights issue, Pennon said this implies an underlying cut of around 30%. Future increases are intended to track CPIH inflation from the new base.

Haslett said his review had identified real strengths in the business, but also areas needing improvement. The operational reset is built around five pillars, including asset management, the environmental programme and customer service, and has already brought new appointments to chief asset officer and chief people officer roles.

Results of the rights issue are due to be announced by 27 October.