Southern Water has said it needs to raise £550 million from its shareholders to shore up its finances.

Robert Lea www.thetimes.co.uk

The announcement came as a ratings agency pulled the plug on the supplier and sewerage group’s dividends by downgrading its £5.2 billion debt to just above junk bond status. Fitch Ratings said this was a “trigger event” under which Southern would be prevented from distributing dividends.

It is the latest scare in a sector in which Thames Water is at risk of falling into administration in a crisis that has cost the jobs of its chairman and chief executive. Thames, which needs to raise £1 billion from its shareholders, is due to give an update on its financial woes on Monday. Southern’s need for new money comes after a £1.1 billion rescue two years ago by Macquarie, the finance house.

Fitch said it was lowering its rating on Southern Water to BBB with a negative outlook from BBB+. It said it had acted as the group’s debts meant it may be unable to meet its investment commitments through to 2025. This risk had been exacerbated, it said, by weak cashflow and high interest rates.

Ofwat has declared that if water companies’ ratings fall to a certain level it will intervene to prevent the payment of dividends to shareholders.

Southern has one of the worst environmental records in the industry and is accused of sewage pollution incidents over many years, from the bathing and sailing waters of the Solent to oyster fields off the Kent coast.