The Straits Times / The Business Times News on Hyflux

Hyflux trims stakes in two Dubai ventures and reaps 20% returns

WATER treatment specialist Hyflux said yesterday that it will sell most of its stakes in two Dubai joint ventures to its business partner, Istithmar.

Hyflux will transfer a 44 per cent stake in Palm Water and its entire 51 per cent stake in Hyflux Middle East to Dubai-based Istithmar.

In return, Istithmar will pay Hyflux its original capital contributions totalling $11.1 million, plus an amount equivalent to around $2.2 million.

After the equity restructuring, Hyflux will retain a 5 per cent stake in Palm Water, while Hyflux Middle East will be dissolved eventually.

The deal will yield a 20 per cent return on invested capital for Hyflux, similar to average equity returns on its other projects, it said yesterday.

Group chief executive and president Olivia Lum said the restructuring exercise fits into the company's 'asset-light' strategy.

As part of the restructuring, both companies agreed that Hyflux will be given the exclusive rights to supply its proprietary membrane systems and process designs to Istithmar and Palm Water at competitive prices, when this is appropriate for their projects.

It will also supply systems to two seawater desalination plants being built for The Palm Crescent development.

The parties also agreed that Hyflux will be able to develop independently of the market in the Middle East and other territories now covered under their joint venture agreements. These agreements will be amended accordingly, Hyflux said.

In addition, it will not be involved in any construction work for Palm Water's projects as such work is required under local Dubai laws to be undertaken with a local partner.

In return, the Hyflux warrants granted to Istithmar will be cut from 10 per cent of diluted issued share capital to 7.5 per cent.

Ms Lum said the restructuring delivers many strategic benefits to Hyflux. The company still has the opportunity to participate in Palm Water's projects.

'At the same time, it enables us to capture the full value of the transactions with Palm Water in terms of revenue and profit recognition, thus enhancing our profit margin.

'All in all, this initiative is a winning combination for both Istithmar and our group,' she said.