The Straits Times / The Business Times News on Hyflux

Hyflux's desalination plant to be spun off into trust

Move could pave the way for a listing; firm will continue to operate facility

WATER treatment firm Hyflux is putting its SingSpring desalination unit into a business trust that market observers say may eventually be listed.

The move fits in with Hyflux's strategy to be asset-light while also taking advantage of upcoming tax changes to boost the infrastructure sector.

Hyflux and Temasek Holdings hold 50 per cent each of SingSpring, which owns the desalination plant - the first to be built in Singapore. It has a 20-year agreement to supply the Public Utilities Board with water.

Hyflux said yesterday that the plan t will go in the trust, to be called the SingSpring Trust. It will operate in much the same way as a property trust and pay investors regular distributions.

Once the trust is set up, the plant, which opened last year, will no longer be recorded as an asset in Hyflux's books.

Hyflux plans to hold only 30 per cent of the units in SingSpring, implying that the remaining 20 per cent stake will be sold, either to Temasek or a new investor.

Hyflux still has the contract to operate the plant, so its bottom line will benefit from the income from running and maintaining it.

Hyflux chief executive Olivia Lum hinted that SingSpring may not be the only asset to be placed in the trust and referred to Hyflux's other projects in China, India and the Middle East.

'The planned business trust structure may also be a possible platform for the company to unlock the...values of these other water assets,' she said.

Hyflux shares ended two cents lower at $2.25 yesterday, not far off the year's low of $2.05, reached in June.

No mention was made of listing the trust but market observers said it was a likely outcome, given the recent tax incentives for the infrastructure industry.

Business trusts are a relatively new concept and only one is listed here - Pacific Shipping Trust, which charters out vessels. It was launched earlier this year.

Business trusts are similar to real estate investment trusts (Reits), with assets generating income, which is paid to unit holders. A trust's advantage is that as long as it has enough cash, it can distribute more than its actual profit for that year.

Analysts said infrastructure projects, such as a desalination plant, suit a business trust as they can pay investors stable and predictable long-term returns. But Reits still have a major advantage over business trusts - their income is not taxed, and unit holders get the distribution tax-free.

Although Pacific Shipping is not a Reit, it did have favourable tax terms because the shipping business is tax-exempt here as part of the Government's strategy to build Singapore into a key maritime centre. But the infrastructure sector may get a similar leg-up on the tax front.

The Monetary Authority of Singapore recently unveiled several tax incentives for the infrastructure sector, which could allow income from infrastructure projects to be tax-free like Reits.

Temasek Holdings chief executive Ho Ching has also talked of Singapore being a hub in Asia to finance the growing number of infrastructure projects in the region.