Hyflux

Nov 24, 2007
Hyflux Water Trust takes the plunge despite weak market
Business unit prices IPO shares at 78 cents each, at the low end of its indicative price range
By Yang Huiwen

POOR market sentiment has forced water treatment firm Hyflux to price the initial public offering (IPO) of its water business trust at the low end of its price range.
Units in Hyflux Water Trust (HWT) - the first 'pure-play global water business trust' to be listed in Asia - will cost 78 cents each. The indicative price range in its prospectus was at 78 cents to 91 cents apiece.

The HWT offering consists of 165 million units, with at least 30 million available to the public.

The listing is expected to raise about $234 million, which the company plans to use to finance acquisitions, development and construction costs of plants, and as working capital.

Hyflux has decided to stick to its guns and go ahead with HWT's IPO, despite recent weak market sentiments sparked by credit woes across global financial institutions.

'The demand for waste-water treatment is huge. Those market fundamentals will remain and continue to drive opportunities for growth, and that is a very good basis for us to launch this trust,' said Mr Saud Siddique, chief executive of Hyflux Water Trust Management.

Hyflux chief financial officer Sam Ong added: 'What we have observed, and in terms of feedback, is that this is a very strong theme, which is able to see through the volatility of the market.'

The trust will distribute dividends of 4.46 cents per unit next year and 5.26 cents apiece in 2009.

Hyflux will inject 13 water plants in China - three treatment plants, eight waste-water treatment plants and two recycling facilities - to form HWT's initial portfolio.

With each plant having an estimated 20- to 30-year tenure, shareholders will be able to expect long-term, predictable distributions, said the trust's manager.

The trust will expand its portfolio through acquisitions from Hyflux, as well as from outside Hyflux.

It will seek opportunities in other 'high-growth markets', including India, the Middle East and North Africa, said Mr Siddique.

HWT's management will be able to acquire any of Hyflux's 20 water-related infrastructure assets under its rights of first offer and first refusal.

The management fee will be linked to the operating performance of the trust in terms of earnings rather than its share price performance.

The fee clarification came after City-Spring Infrastructure Trust was criticised earlier this year when its managers were paid hefty fees despite the trust's underperformance.

HWT's management fee will be pegged to an adjusted Ebitda - earnings before interest, tax, depreciation and amortisation. This will reflect the operational performance of the assets.

The offer opens for application at noon today and closes at noon on Wednesday. Trading is expected to start on Dec 3.

yanghw@sph.com.sg