The Straits Times / The Business Times News on Hyflux

Hyflux to divest SingSpring stake to trust

It will own 30% of units in SingSpring Trust; subsidiary to continue operating Tuas plant

WATER specialist Hyflux has proposed to divest its stake in SingSpring, which owns Singapore's first seawater desalination plant, to a business trust, in a move first hinted at as early as in 2004.

SingSpring, originally a Hyflux-led consortium, won the deal to build the $200 million reverse osmosis plant in Tuas in 2003. Hyflux's equity investment was $35 million, with the remainder funded through a $165 million loan.

In April 2005, months before the construction was completed, Hyflux sold 50 per cent of the plant to Temasek Holdings for $30 million in cash, booking a $20 million capital gain.

Hyflux completed the plant in September 2005 and has a contract to continue operating it for 20 years, thereby deriving recurring revenue.

Olivia Lum, the company's founder and chief executive officer, has repeatedly said that Hyflux wants to divest a further 20 per cent of SingSpring to a business trust, in order to free up the balance sheet and be 'asset-light'.

In an announcement yesterday, Hyflux said it 'is in the process of carrying out a restructuring exercise under which SingSpring will vest all the assets and its sole business of its seawater desalination plant in a trust', to be named SingSpring Trust, subject to third-party and regulatory approval.

Hyflux will own 30 per cent of the units in SingSpring Trust.

Its wholly owned subsidiary Hyflux Engineering will continue to operate the desalination plant for the entire term of the 20-year water purchase agreement, 'which will generate long-term recurring income stream both from the operating and maintenance income', it said.

'In addition to the Singapore portfolio, the company has also cultivated and will be delivering a strong pipeline of build-own-operate and build-operate-transfer projects in China, India and the Middle East,' said Ms Lum.

'We believe that the planned business trust structure may also be a possible platform for the company to unlock the intrinsic value of these other water assets at the opportune time,' she added.

In November, the firm upped its stake in SinoSpring, which owns several water treatment projects in China costing a total of some $400 million to build, from 50 per cent to 80 per cent.

The majority ownership would give Hyflux the flexibility to return value to shareholders, Ms Lum later said of the decision.

Hyflux had an order book of $454 million as of Nov 14, 2006 and is delivering over 13 projects in China and India that are scheduled to be completed within the next one to three years.