Merrill dampens Northumbrian debut

NORTHUMBRIAN Water Group got an icy welcome to the Stock Exchange today. Broker Merrill Lynch rubbished the utility's 'unsustainable financial structure' and said it could launch a rights issue within months.

The North-East water group, which also owns Essex & Suffolk Water, stepped up to a full listing today only four months after floating on AIM, having been spun out from cash-strapped French utilities giant Suez.

Sector analyst Robert Miller-Bakewell said the shares were not worth having. In a research note he said he foresaw problems with NWG's £1.7bn debts, especially as Standard & Poor's has rated its debt only two notches above junk status.

With static revenues from water likely to bring a 20% fall in profits this year and a tough price review from Ofwat in sight, Miller-Bakewell warned: 'We see a risk of a rights issue in early 2004 which we would not expect 25% shareholder Suez to support.

'We believe NWG has returned to a full London listing with an unsustainable financial structure.' NWG shares, floated in May at 100p, were down 3/4p at 107p.