Pennon launches £550m rights issue, cuts dividend

Pennon Group has announced a fully underwritten rights issue intended to raise approximately £550 million. The capital raising forms part of a wider strategic reset at its regulated water businesses and is structured as an offer of 220,257,997 new ordinary shares at 250 pence each. The new shares are being issued on a 7-for-15 basis to existing shareholders, and the company has confirmed that the offering is fully underwritten.

The group published detailed terms for the rights issue in an announcement and an accompanying offering circular released the same day. These documents set out the mechanics of the capital raise and confirm that the proceeds will be directed towards accelerating and expanding planned investment over the coming regulatory period.

Pennon stated that the £550 million rights issue proceeds will support about £1 billion of additional investment during the AMP8 regulatory period. This extra spending is expected to lift the company’s total capital investment across AMP8 to approximately £3.6 billion. The new plan represents around £1 billion more than Pennon’s original AMP8 investment intention, marking a significant step up in its funding commitment to its water infrastructure and operations.

The emphasis of this enlarged programme is on upgrading and strengthening the group’s regulated water activities. By pairing the equity raise with a higher investment envelope, Pennon aims to implement a broad operational overhaul within the current regulatory cycle, supported by a more robust capital structure.

Alongside the rights issue, Pennon has revised its dividend policy and payout expectations. The company has rebased its total dividend for the 2026/27 financial year to about £125 million, compared with £138 million for 2025/26. This change implies an underlying dividend per share cut of roughly 30%, with the payout for 2026/27 expected to be around 18 pence per share.

Pennon has also indicated that, from this lower base, future growth in the dividend will be aligned with CPIH. The combination of the rights issue and dividend rebasing is intended to balance the funding needs of the enlarged capital investment programme with a sustainable distribution framework for shareholders.

To further support its financial position, Pennon has signalled that it may sell its Pennon Power business. The company expects that around £25 million of any disposal proceeds would be allocated to behind-the-meter renewable generation at existing operational sites. The remaining proceeds would be used to reduce group debt, complementing the equity raised through the rights issue.

This possible asset sale sits alongside the broader capital plan as another lever to fund investment in operational improvements while managing leverage. It reflects an integrated approach that combines new equity, portfolio simplification and a reset dividend policy.

The market response to Pennon’s package of measures was negative on the day of the announcement. The company’s shares fell by about 16% following the disclosure of the £550 million rights issue, the planned uplift in AMP8 capital expenditure and the rebasing of the dividend. The share price move underlines the immediate impact of the dilution and lower dividend expectations on investor sentiment, even as the company outlines a larger long-term investment programme.