Veolia should use hybrid bonds to a **moderate-to-high extent**, but not all the way to S&P’s 15% equity-credit cap.

Key considerations:

- **Existing hybrid starting point is already material.** Deeply subordinated securities were **€3.50bn at year-end 2022**, up from €2.46bn, mainly due to the Suez hybrid contribution, partly offset by a €500m repayment. This means Veolia already uses hybrids as a structural capital tool.
- **Adjusted capital base is large, but leverage pressure increased materially.** Total equity was **€14.87bn**, while financial liabilities excluding concession liabilities plus leases were roughly **€28.37bn** before cash netting. Total adjusted capital on a broad gross basis is therefore around **€43bn**, implying the existing hybrid stock is about **8% of total adjusted capital**. On this basis, Veolia is already above the **7.5%** option but below **11.25%**.
- **M&A and integration pressure is significant.** The Suez acquisition substantially expanded the balance sheet: assets rose from **€53.1bn to €73.3bn**, goodwill nearly doubled, PPE rose sharply, and noncurrent financial liabilities almost doubled. This points to ongoing integration, refinancing, and deleveraging needs.
- **Cash flow is solid but not enough to remove capital-structure pressure.** Operating cash flow improved to **€4.15bn**, and EBITDA-like operating cash flow before working capital reached **€4.80bn**, but capex was also high, with net industrial investments of **€2.78bn**. Finance costs almost doubled to **€633m**, showing the effect of higher debt and rising rates.
- **Hybrid issuance can meaningfully support credit metrics.** For a utility/environmental services group with regulated or quasi-regulated infrastructure-like characteristics, maintaining investment-grade flexibility is important. Hybrids receive partial equity credit from S&P and can support adjusted debt metrics without issuing common equity.
- **But the cost environment is less favorable than in 2020–2021.** Euro swap rates rose sharply in 2022, and the subordinated/senior spread is materially higher. Hybrid coupons would likely be meaningfully above historical debt costs, so maximizing to 15% is not clearly justified unless downgrade risk is acute.
- **Practical issuance constraint matters.** With existing hybrids around €3.5bn, moving to the full 15% cap would likely require close to €3bn additional hybrids depending on the exact adjusted capital definition. This is possible within the stated annual maximum, but would be aggressive given the already large hybrid stock and higher coupon environment.

Overall, Veolia has **significant leverage and acquisition-related pressure**, and hybrids are already an accepted part of its capital structure. However, because it already has a substantial hybrid base and because the interest-rate environment has worsened, the optimal recommendation is to increase or maintain hybrid usage around the **11.25%** level rather than push to the full **15%** cap.

<answer>11.25%</answer>