8 things I learned from the 2019 Keppel Infrastructure Trust AGM

Keppel Infrastructure Trust (KIT) is a business trust listed on the Singapore Exchange. KIT’s stable base of strategic infrastructure assets in energy, distribution & network, and waste & water provides essential services to a wide range of customers including government agencies, multinational corporations, commercial and industrial enterprises. As at 31 December 2018, KIT has $$3.8 billion in assets under management (AUM).

Here are eight things I learned from the 2019 Keppel Infrastructure Trust:

1. Revenue increased 0.8% year-on-year to S$637.4 million in 2018. This was mainly contributed by City Gas as a result of higher town gas tariffs, which was offset by lower revenue from Basslink due to a service outage in March 2018 caused by a third party-contractor.

2. KIT has regrouped its assets into three segments: energy, distribution & network, and waste & water. Each segment generated S$129.1 million (20% of total revenue), S$414.8 million (65%), and S$93.5 million (15%) in revenue respectively.

3. KIT’s net profit attributable to unitholders decreased 32.7% year-on-year to S$32.0 million in 2018. The decline in profits was due to lower contributions from City Gas on the back of a time lag in the adjustment of gas tariffs to reflect actual fuel costs, lower fees from the Basslink service outage, and a higher fair value loss from derivative financial instruments.

4. Distributable cash flows decreased 2.1% year-on-year to S$141.2 million while distribution per unit (DPU) remained unchanged at 3.72 cents. Unlike a REIT, a business trust is not required to make a minimum level of payout. Any shortfall in distributable cash flow can be made up using cash, debt, or concession receivables. Therefore, you should pay attention to the Trust’s cash flow instead of its accounting profits. In 2017 and 2018, KIT’s payout ratio (based on distributable cash flow over operating cash flow) is 138.9% and 78.2% respectively.

5. On 19 February 2019, KIT completed the acquisition of Ixom Holdco Pty Ltd, an Australian chemical supplier, for A$770 million (S$775 million) in cash. The acquisition was funded with a bridge loan facility of up to S$750 million. Management expects to pay down the debt with equities raised from unitholders through preferential offerings. Additionally, KIT will issue A$532 million in five-year senior term loans to pay off Ixom’s existing loan of A$432 million. The acquisition will bring KIT’s total AUM to S$5.2 billion.

6. A unitholder asked what would happen to Hyflux’s 30% interest in the SingSpring seawater desalination plant – which is co-owned by KIY — if Hyflux goes bankrupt. CEO Matthew Pollard said that KIT has notified Hyflux of its intention to preserve its rights at a price stipulated in the joint venture agreement. In the event of a default, KIT has the rights to assume operations of the plant to ensure there will be no disruptions. KIT is reviewing the deal at the moment to determine if it makes economic sense to make the acquisition.

7. With a gearing ratio of 40.6%, a unitholder wanteds to know if KIT had any financial capacity to take on Hyflux’s interest in SingSpring, and how the price of the acquisition would be determined. The CEO responded that KIT is capable of making the acquisition as the Trust has a borrowing capacity in excess of S$400 million. The price will be tied to an independent valuation determined by a third party. He also disclosed that the entire book value of SingSpring is S$80 million.

8. A unitholder expressed his concerns about the high gearing and that 53% of borrowings — amounting to S$1 billion dollars — are due within a year. The CEO said that $700 million of that sum comes from BassLink which is due on 29 November 2019. Currently, he is in discussions with the lending community and he is confident that KIT will reach solution before the due date. The remaining $300 million relates to KIT and City Gas which has already been refinanced.

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Kenny Quek is a research analyst at The Fifth Person. He graduated from Drexel University in Philadelphia, PA with a major in finance and previously managed a fund in the U.S. before returning to Singapore.


  1. Jonathan Lloyd

    May 26, 2019 at 10:03 am

    Didn’t they also indicate that they are ascribing zero book value to Bass Link?

    • Kenny Quek

      May 27, 2019 at 7:57 pm

      Hi Jon,

      Not that I know of, but you can definitely ascribe zero book value to Basslink. Any claims from the State of Tasmania regarding the power outage will stop at the Basslink level, and KIT does not depend on cash flows from Basslink for current distribution.

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