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Wednesday, 28 November 2007

Hyflux Water Trust

Hyflux Water Trust is the first pure-play global water business trust to be listed on a securities exchange in Sia that provides investors with an opportunity to invest in water-related infrastructure asset in China, Middle East and North Africa region. Upon listing, it will have 13 plants in China.

Sponsor: Hyflux
Number of Units : 165 million (Out of which 30m for Public, 135m for Placement)
Price per Unit: $0.78
Yield 5.72% for FY 2008 (after Sponsor waived off its rights to the Distributions)
Yield 6.74% for FY 2009

In my personal view, this is one of the smartest strategic move by one of the richest lady in Singapore. Hyflux, with its expertise in Water Treatment, owns many water treatment plants. The setting up of the Trust allows Hyflux to 'cash out' of its fixed assets by selling these assets to the Trust in exchange for Units and enticing investors with the 'yield' carrot. To me, the yield presented in the prospectus is unlikely to be achieved if not for the Sponsor waiving off its rights to the distributions in FY2008 and most likely in FY2009, it will elect to receive its management fees in units in order to meet the yield projections. To me, the entire exercise benefits Hyflux the most as it will allow Hyflux to recycle its capital and cash out on its assets.

The closest peer listed in Singapore is Cityspring but at least the performance fee of Hyflux will not be based on its share price performance. Although i like the business in which it is in, the yield presented in the Prospectus is really too low for me vis-a-vis the risks involved. The "Sponsor" might be a better investment target that the Trust. Anyway, my personal view is not to subscribe to the IPO. If you really need that yield, a property trust might just do the trick and the share price performance of Cityspring post its listing isnt helping either.

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