Southern Water is in billions of pounds worth of debt.

The financial situation of water suppliers has come under scrutiny as fears continue over the future of Thames Water, which is battling to finance the £14 billion of debt on its books following interest rate rises.

In December, industry regulator Ofwat flagged five water suppliers whose financial resilience it was most worried about.

As well as Thames Water, it highlighted Portsmouth Water, Yorkshire Water, Southern Water and SES Water as its “highest priority for engagement”.

Southern Water, which provides wastewater services for regions in Kent, Sussex, Hampshire and the Isle of Wight, and supplies water to 2.6 million homes, had a net debt pile of £5.2 billion last year.

In April, the group published a turnaround plan to “rapidly improve performance” before 2025, while it also received a £530 million cash injection to support its financial position.

Scrutiny of the industry intensified this week after reports that ministers are working on a contingency plan to prevent debt-laden Thames Water from going under.

Debt has been growing across the sector, largely because of high inflation on index-linked debt – meaning companies owe more money when economic conditions worsen.

A Southern Water spokesman said new majority shareholder Macquarie Asset Management injected £1 billion in new equity to “recapitalise the business and implement a more sustainable financing strategy” in 2021.

The spokesman said: “As part of its entry into Southern Water in late 2021, its new major shareholder injected £1.1 billion of equity into the group. Southern Water’s shareholders continue to be supportive of the business and its financial resilience. We are making greater than anticipated investments in our assets and helping more customers struggling with the cost of living than ever before."

Susannah Streeter, head of money and markets for Hargreaves Lansdown, said: “Big questions are now being raised about the potential precariousness of other water firms.

“Ofwat had been monitoring Southern Water and Yorkshire Water, as well as Thames Water, given its concerns over their financial resilience.

“In its 2022 annual report, it also flagged worries about Northumbrian Water and Portsmouth Water for having fallen far short of expectations when it came to the level of dividends paid given their relative financial resilience.

“It’s no wonder waves of worry are now surrounding more firms who have been caught uptide, as the era of cheap money has been dammed and their debt payments have hurtled upwards.”

Southern Water is proposing to charge customers an extra £279 a year on their bills by 2030, documents from a focus group revealed earlier this month.