The owner of South West Water has bought debt-laden rival Sutton and East Surrey Water for £380 million.

Pennon, which owns South West Water, will pay £89 million for Sumisho Osaka Gas Water UK Limited, the parent company of Sutton and East Surrey Water (SES Water), while also taking on £291 million in debts.

The deal will see Pennon add SES Water’s customer base of more than 750,000 and expand its scale further across the South of England.

It comes after concerns were recently raised by the water watchdog over SES Water’s financial resilience.

Pennon’s decision to spend £380 million buying the owner and operator of SES Water may raise eyebrows given the existing need to invest in its own ageing infrastructure and fix sewage discharge issues

Last October, Ofwat named SES Water among the four worst performing water companies financially in the UK, calling for them to turn around their finances.

But South West Water has also come under fire over its performance, having been fined £2.15 million in April last year for illegal sewage spills spanning four years across Devon and Cornwall.

FTSE 250 listed Pennon said it would “enhance SES Water’s financial resilience and better position the business to serve its customers and all stakeholders”.

Susan Davy, group chief executive of Pennon said: “We are able to invest in SES Water’s resources infrastructure, environment and people thanks to our strong financial performance and long-term UK shareholder base, delivering a seamless transition for SES Water’s customers while also providing a more robust and reliable service in the medium term.”

But AJ Bell investment director Russ Mould said: “Pennon’s decision to spend £380 million buying the owner and operator of SES Water may raise eyebrows given the existing need to invest in its own ageing infrastructure and fix sewage discharge issues.”

Pennon also announced plans for an equity raise of £180 million to keep its debt levels in line with targets following the deal.

The fundraise will include offering shares to retail investors via the PrimaryBid platform at 61.05p each, with a minimum purchase set at £250 per investor.

The shares will be available to new and existing investors in the UK, including members of its WaterShare+ share scheme in the UK, as well as company employees.