UK's Pennon seeks £550 million fresh capital as new CEO overhauls utility; shares drop

Oct 7 (Reuters) - Pennon launched a £550 million ($729 million) rights issue and slashed its dividend on Wednesday as part of new CEO Keith Haslett's plans to fund a major overhaul, sending shares in the British water utility sinking to a 15-year low.

Haslett, who took on the top role in April, also plans to sell the company's renewables investment arm Pennon Power in a bid to bolster the firm's balance sheet and cut its £4.51 billion debt pile.

Britain's water industry has been under intense scrutiny for environmental breaches, high dividend payouts and rising customer bills. Prime Minister Andy Burnham said last month he would legislate to repeal a ban on the public ownership of water companies to deal with the crisis in the sector.

Pennon, which owns South West Water and SES Water, said the capital raise would help fund roughly £1 billion of extra investment, taking its total to £3.6 billion for the current regulatory period.

Pennon's shares dropped 22.4% to 350.8 pence by 1037 GMT, the lowest since August 2011. The stock was also on track to log its steepest one-day drop since 1999.

The rights issue at a price of 250 pence per share represents a discount of 35.5% to the theoretical ex-rights price, Pennon said.

The size of the offering came in higher than many analysts expected.

Pennon also reduced its total dividend for fiscal year ending March 2027 to about £125 million from £138 million in fiscal 2026, implying a cut of about 30% in dividend per share.

"(The) successful delivery still depends on execution of the operational turnaround and regulatory approval for additional capex," Jefferies analyst Ahmed Farman said in a note.

The rights issue and dividend cut would give Pennon a dividend yield of about 5%, J.P.Morgan analysts said, adding that investors may demand a higher yield.

($1 = 0.7550 pounds)

(Reporting by Nithyashree R B in Bengaluru; Writing by Yadarisa Shabong in Bengaluru; Editing by Mrigank Dhaniwala and Janane Venkatraman)