The trustee-manager of Keppel Infrastructure Trust A7RU (KIT) has proposed to acquire 50% of Marina East Water (MEW) from Keppel in an interested person transaction (IPT). The acquisition will see Keppel and KIT holding a 50% joint-controlling stake in MEW, which owns the Keppel Marina East Desalination Plant (KMEDP). MEW is the wholly-owned subsidiary of Keppel Infrastructure Holdings.
The parties entered into a conditional share purchase and subscription agreement (SPSA) on Nov 15, and have already received in-principal approval from PUB. Under the agreement, KIT will receive 100% of the economic benefits from the desalination plant which has an enterprise value of $323 million. At the same time, the plant’s operations and maintenance will continue to be performed by Keppel’s infrastructure division until the end of the plant’s concession period in 2045.
KMEDP began commercial operations in June 2020 and is Singapore’s fourth desalination plant. It is also the republic’s first and only large-scale, dual-mode desalination plant, which can treat both seawater and freshwater. The plant has the ability to produce 137,000 cubic metres of fresh drinking water per day. Keppel was awarded a contract by PUB to design, build, own and operate the plant from 2020 to 2045.
The addition of KMEDP is said to be a win-win for both Keppel and KIT; it will free up Keppel’s balance sheet and is accretive to KIT’s distribution per unit (DPU). The move will also deepen KIT’s exposure to critical water treatment solutions.
KIT’s trustee-manager says it intends to fund the investment with internal fund sources and its existing debt facilities. It will also extend a non-interest bearing shareholder’s loan of $35 million to MEW upon the completion of the acquisition. MEW had drawn down $315 million on a term loan facility on April 25, 2022, which has since commenced amortisation. As at Nov 18, $288.2 million remains outstanding on the facility.
Upon the completion of the proposed acquisition, KIT’s assets under management (AUM) will grow to $9 billion from $8.7 billion as at Sept 30. The acquisition is subject to closing conditions including regulatory approvals as well as approvals from KIT’s unitholders at an extraordinary general meeting (EGM).
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“Since commencing commercial operations in June 2020, the KMEDP has consistently delivered strong availability and high-quality water. With a proven track record of stable operational performance, the partial sale of our interest is aligned with Keppel's capital recycling strategy and our commitment as a sponsor of KIT to develop and contribute a pipeline of long-lived, stable-yield assets,” says Cindy Lim, CEO of Keppel’s infrastructure division.
“The strategic acquisition of the KMEDP, which is a high quality and energy efficient asset, will further enhance the strength and resilience of KIT’s portfolio, as well as support KIT’s environmental, social and governance goals,” adds Kevin Neo, CEO of the manager. “The facility is one of the key assets that contribute to Singapore’s water security and has a long-term contract with a strong counterparty, which will bolster KIT’s distributable income as well as support our goal of generating sustainable returns that will enhance total returns for unitholders.”
Shares in Keppel and KIT closed at $6.56 and 44 cents respectively on Nov 15.
