Singapore Corporate News - 23 Apr 2008

Hyflux wins bid for $632m desalination plant in Algeria

SINGAPORE'S water-treatment specialist Hyflux has won the bid to build and operate a $632 million seawater desalination plant in Algeria. The project raises its order book to $1.5 billion.

With a capacity of 500,000 cubic metres a day, the plant is said to be the world's largest using reverse osmosis technology. Construction begins in 2009 and should be completed by 2011, the company said. Its concession for the design-own-operate-transfer project is for 25 years.

Hyflux will take a 51 per cent stake through MenaSpring, its wholly owned subsidiary, in a joint venture company to be set up. Algeria Energy Company (AEC), the Algerian government firm handling power and water privatisation, will own the remaining 49 per cent.

AEC has arranged financing for about 70 per cent of the estimated project cost of US$468 million from Algerian banks at a 'very low' rate of 3.75 per cent, said Hyflux chief executive officer Olivia Lum at a press conference.

She added that Hyflux may divest some of its stake in the joint venture because of its asset-light strategy. 'We are always looking to divest at the right time. There is a clause that we are able to do so.'

Hyflux chief financial officer Sam Ong said the project would be 'very profitable because of the low interest rate', despite the very competitive tariff rate the company bid.

He said Hyflux will initially invest $80 million and expects EPC (engineering, procurement and construction) revenue of $600 million from 2009 to 2011. After which, Mr Ong said, it expects to book $60 million every year in revenue from operating and maintaining the desalination plant.

By comparison, according to analysts, its wastewater treatment plants in China each bring in between $1 million and $3 million a year in operating revenue.

By 2009, according to Mr Ong's estimates, the Middle East and North Africa will make up almost half of Hyflux's revenue. Last year, revenue from the region was just 7 per cent of the total $192.8 million. 'Algeria is the third largest market in the world for desalination,' Mr Ong noted.

Hyflux is also now developing a US$238 million desalination plant in Tlemcen in Algeria, with capacity of 200,000 cubic metres a day. Six per cent of the EPC work has been done two weeks ahead of time, Mr Ong said. With the new plant, Hyflux's accumulated capacity is expected to hit 1.95 billion litres a day by 2011.

An excited Ms Lum told reporters and analysts that the new Algeria deal would take Hyflux 'into a different category' in the water-treatment field. She said it would be even more profitable than Hyflux's Singapore desalination plant, Singspring.

While the tariffs in Algeria would be roughly similar at 55.77 US cents, the cost of electricity, the main input cost, is half as much in Algeria. 'The plant is three times as large (as Singspring); at the same time, the borrowing rate is much less than what you can get in Singapore.'

Mercator buys vessel for US$65.5m

INDIA and China-focused dry bulk carrier Mercator Lines (Singapore) is steadily building up its fleet of geared vessels with the recent purchase of a 69,186 dwt Panamax class geared bulker for US$65.5 million from Panamanian owner Ken Line SA.

The YK Taurus is the second vessel to be acquired by Mercator since its listing last year. Mercator currently hires the vessel on a time charter-in basis which is due to expire at the end of this month. It is scheduled for delivery between June 1 and June 30 and is tentatively proposed to be financed by Mercator's IPO proceeds, internal accruals and debt.

With the latest acquisition, Mercator's number of owned dry bulk vessels increases to nine, which along with two chartered-in vessels makes up 11 in total with an aggregate capacity of 829,057 dwt. Significantly, the number of geared Panamaxes will also be increased to a total of five out of its nine Panamaxes, further strengthening its position as a leading operator of the Indian-operated geared Panamax market.

Elaborating on the acquisition, Mercator managing director and chief executive officer Shalabh Mittal said that it was a strategic move because the vessel's size and geared feature give it an advantage in its major trading markets.

'Its geared feature allows us to capitalise on the niche segment of dry bulk trade where port infrastructure and facilities are still underdeveloped. Such ports are present especially in the high growth Indian sub-continent that is currently experiencing high demand for dry bulk trades.

'Additionally, by taking advantage of the infrastructure shortcomings in the Indian sub-continent, we are also able to strengthen our end-to-end customised logistics solutions business in India , which we offer in conjunction with our parent company Mercator Lines Limited (India).
'The acquisition also serves to solidify our position as the largest fleet owner of geared Panamaxes amongst the Indian-owned shipping companies. This, combined with our deep understanding of market conditions and quick response to changing demands, greatly sharpens our competitive edge, giving us greater prominence in our niche areas - high growth markets such as India and China.'

Mercator shares closed 2.5 cents higher at 32.5 cents yesterday.

SPC Q1 net profit slips 12%

DESPITE recording 41 per cent higher sales of $2.7 billion, Singapore Petroleum Company saw its first-quarter net profit slip by 12.2 per cent to $98.4 million, a major factor being a tax write-back in the previous corresponding quarter.

Earnings per share for the quarter ended March 31, 2008, fell correspondingly by the same percentage to 19.08 cents.

Tax expense for the quarter was $22.4 million - against $5.8 million for the previous corresponding period - cue to two factors. Firstly, there was increased contribution to the bottom line from its exploration and production (E&P) activities, which accounted for $16.5 million of the tax expense.

Secondly, it was due to the deferred tax write-back of $10.5 million in Q1, 2007, as a result of the lowering of the Singapore corporate tax rate.

In Q1, SPC said it handled a total crude and product sales volume of 19.3 million barrels, which was a 5.8 per cent decline from Q1 2007. This was due to a reduction in fuel oil trading volumes as a result of a shortage of suitable blending components and also fewer cargoes coming from the Middle East.

Notwithstanding this, 'rising oil prices appear not to have dampened demand for refined products in Q1', it said. 'Despite the lower sales volume and a lower US$, the group's turnover of $2.7 billion was a 41 per cent increase over Q1 2007. Realisations (or profit per barrel) during the quarter averaged US$98.47 compared with US$61.13 for Q1, 2007, an increase of 61.1 per cent.'

SPC said it continued to optimise its refining capacity during the quarter - which saw it achieving an average margin of US$7 per barrel. This was comparable to the margin achieved for Q1, 2007, as well as the whole-year 2007 number.

Downstream activities contributed $2.62 billion in turnover and an operating profit of $81.8 million, while upstream E&P contributed $94 million in turnover and $38.2 million in operating profit for Q1.

SPC said that for Q2, its joint-venture Singapore Refining Company's processing capacity will be reduced by 3 per cent compared with first quarter due to scheduled maintenance shutdowns of its catalytic reformer unit and the Hydrocracker 2 unit in April and May. But SPC assured that it will have sufficient inventory during this period to cater to market demand.

On prospects ahead, it expects the continuing high oil and commodity prices to negatively impact global GDP growth. 'Against this expected slowdown of the global economy, demand for refined products may soften in the next few quarters. However, global refining capacity remains constrained and refining margins are expected to be well supported,' said SPC.

Lew Syn Pau retires from Ascendas post

LEW Syn Pau has retired from his post as director and non-executive chairman of Ascendas Funds Management (S) Ltd (AFM). AFM is the manager of Ascendas Real Estate Investment Trust (A-Reit).

In a statement released yesterday, AFM said Mr Lew's retirement is part of the board reorganisation process.

Taking over the chairmanship yesterday is AFM independent director David Wong Cheong Fook, whose position as AFM's audit committee chairman is now taken over by audit committee member Benedict Kwek. Mr Wong was group MD of Wearnes Technology until April 2003.

The board of directors of AFM said it wished to put on record its gratitude to Mr Lew for his 'sterling leadership, dedication, contribution and support over the last six years'.

Mr Wong added: 'Moving forward, the board, together with the AFM team, will continue to build on the strong performance of A-Reit to propel it to greater heights.'

AFM also announced the appointments of three new directors yesterday: Joseph Chen Seow Chan, Chia Kim Huat, and Tan Ser Ping.

Mr Tan, who is CEO of AFM, is appointed executive director. He has been with the Ascendas Group since 2001 and with AFM for more than four years.

Both Mr Chen and Mr Chia are non-executive directors and are appointed members of the AFM's audit committee.

Mr Chen was a managing director of global treasury at UOB before retiring in 2005 after 17 years with the bank.

Mr Chia is a partner with Rajah & Tann LLP.

CMT Q1 annualised DPU up 15%

CAPITAMALL Trust (CMT) has announced a distribution per unit (DPU) of 3.48 cents for the first quarter ended March 31.

This represents, on an annualised basis, a DPU of 14 cents - 15 per cent higher than for the previous corresponding period - and a distribution yield of 4.02 per cent based on the unit price of $3.48 on Monday.

Pua Seck Guan, CEO of CMT manager CapitaMall Trust Management Ltd, said: 'The top-line numbers achieved by CMT remains very strong, supported by robust rental renewals and multiple asset enhancement initiatives.'

While Mr Pua expects organic growth driven by asset enhancement programmes to continue to 'take centre stage in the coming quarters', he revealed that as at March 31, over 92 per cent of its forecast net property income for 2008 has already been locked in.

He added: 'With a gearing of 35.3 per cent, we have a capacity to acquire at least $1.2 billion worth of assets through 100 per cent debt funding, without resulting in a change in our corporate rating of A2 assigned by Moody's Investors Service. We will continue to actively pursue yield-accretive acquisition opportunities to grow our local target asset size to $8 billion by 2010.'

As at April 21, CMT had an asset size of about $5.9 billion.

CMT's gross revenue for the first quarter came to $121.1 million, an increase of $3.9 million or 3.4 per cent over its forecast.

Net property income of $84.7 million for the quarter exceeded forecast by 8.2 per cent or $6.4 million. CMT added that IMM and Bugis Junction outperformed forecasts by 11.5 per cent and 15 per cent respectively.

Rental renewal rates for the quarter registered growth of 10.4 per cent over preceding rental rates and 4.3 per cent over forecast rental rates.

For 2008, CMT said that a significant amount of asset enhancement initiatives will be in progress at various malls across its portfolio amounting to some $179.1 million in capital expenditure.

These include on-going works, such as the redevelopment project at Sembawang Shopping Centre, which commenced in Q107 and is expected to be completed by Q408, Lot One Shoppers' Mall, which commenced in Q307 and is expected to be completed in Q408, and upcoming works such as the redevelopment of Jurong Entertainment Centre, as well as enhancement schemes at Bugis Junction and Plaza Singapura.

CMT said that vacancy voids may have a varying impact on operational costs in the coming quarters in 2008. As such, CMT has retained $5.5 million of its taxable income available for distribution to unitholders for the quarter.

CMT said that the retained taxable income would provide a sustainable pool of funds that would help negate the impact of fluctuating operational cash flows, thereby providing unitholders with stable 2008 quarterly distributions.

At the end of trading yesterday, CMT unit price was up five cents to close at $3.53 per unit.

First Reit Q1 DPU increases 15.6% to 1.85 cents

HIGHER rents and contributions from new properties led healthcare-focused First Reit to a 15.8 per cent gain in first-quarter distributable income to $5.1 million.

The performance lifted distribution per unit 15.6 per cent to 1.85 cents, from 1.60 cents in Q1 last year. On an annualised basis, this translates to 7.5 cents or a distribution yield of 10.7 per cent, based on last Friday's closing price of 70 cents a share.

Ronnie Tan, CEO of the Reit's manager Bowsprit Capital Corp, said that the results reflect the structure of the Reit, which focuses on long-term stability.

'Our properties are leased to master lessees for relatively long tenures of 10 and 15 years, with provisions for favourable yearly rental increases,' he said. 'This minimises the risk associated with short-term leases and multiple tenants. . .

'In addition, the base rent for our Indonesian properties is pegged to a relatively stable Singapore dollar, which helps reduce forex volatility.'

First Reit has eight properties in its portfolio, including three Siloam Hospitals and the Imperial Aryaduta Hotel and Country Club in Indonesia. Between Q2 and Q3 last year, the trust acquired Adam Road Hospital, The Lentor Residence and two nursing homes in Singapore.

For the three months ended March, net property income rose 24 per cent to $7.4 million. Management fees rose 27.2 per cent to $701,000. The trust also incurred $490,000 in finance costs for external borrowings used to fund the Singapore acquisitions.

With a debt-to-property valuation ratio of 15.6 per cent, Dr Tan said that there is ample space to support further growth in assets. The Reit is aiming for a portfolio size of $400 million by the end of this year, from $326 million now. It is eyeing opportunities in China, Indonesia and Malaysia.

Amid expectations of a global economic downturn, Bowsprit Capital remains optimistic that First Reit will continue to perform 'because of its stable revenues which are based on long-term rental leases'.

Shares of First Reit went up half a cent yesterday to close at 70.5 cents.

Aztech's Q1 profit down 17.9% to $3.13m on rising oil prices

RISING oil prices, coupled with the sustained depreciation of the US dollar against the yuan and the Singapore dollar, continue to take their toll on Aztech Systems, dragging its first-quarter profit down by 17.9 per cent to $3.13 million.

Despite registering a 23.5 per cent increase in revenue to $68.97 million for the three months ended March 21, 2008, the company's bottomline was dented by rising production and labour costs. As a result, Aztech's Q1 earnings per share also dropped 18.3 per cent to 0.76 cents.

Aztech's turnover is derived mainly from sales of networking equipment such as Internet routers and ADSL (Asymmetric Digital Subscriber Line) modems, as well as gadgets like music players and cordless phones.

Earlier this year, the company branched into the business of supplying construction materials through its wholly owned subsidiary, AZ United.

According to Aztech chairman and CEO Michael Mun, the company's OEM (original equipment manufacturing) and ODM (original design manufacturing) business continues to be the revenue linchpin, accounting for 51 per cent of total Q1 sales.

In particular, turnover in this segment was helped by the major contract it signed with a North American telco in September last year. To date, 2.4 million ADSL modems have been delivered to this customer and new orders are still flowing in, Mr Mun said.

The firm's two other key business units - contract manufacturing and retail - accounted for 42 per cent and 7 per cent of turnover respectively. Aztech's newly-minted building materials subsidiary, however, is only expected to contribute positively to the company's income later this year as AZ United has just started delivering shipments under a flagship deal it secured in February this year. The three-year contract is worth some $250 million.

From a geographical standpoint, North and South America remain as the sales strongholds and the region contributed 45 per cent to Aztech's Q1 revenue, followed by Europe (34 per cent) and Asia-Pacific (10 per cent).

To offset rising oil and commodity prices, Mr Mun said Aztech will adjust the selling prices for its products and implement a series of energy efficiency programmes to rein in production costs.

Mounting wages and inflation in China will be tackled through increased factory automation, as well as the adoption of more flexible production systems and cell-based manufacturing lines. In addition, currency fluctuations will be managed through hedging, he explained.

'Our development plans remain on track, and we are encouraged by our success in the broadband market and our new diversification venture. At the same time, we acknowledge that the business environment in 2008 is challenging with the worldwide cost pressures,' Mr Mun said.

Aztech shares were up 0.5 cent to close at 23 cents yesterday.

Pacific Shipping Trust Q1 DPU falls

PACIFIC Shipping Trust has allocated an income distribution of US$3.3 million for Q1, despite posting an 83 per cent fall in net profit to US$466,000. The distribution per unit (DPU) for the three months ended March will be 0.97 US cents, down from 1.04 US cents a year ago. Gross revenue for the period went up 4 per cent to US$8.85 million.

UK asset manager invests in Chasen

UK offshore asset management firm Pacific Capital Investment Management has agreed to invest up to $30 million in Chasen Holdings through an issue of convertible notes. The notes, to be issued in tranches of $1 million, will be unsecured with a 0 per cent coupon rate and will mature in 2011.

China New Town Q1 profit up 9%

CHINA New Town Development Company saw its net profit attributable to equity-holders rise 9 per cent to 63.4 million yuan (S$12.3 million) in the first quarter ended March 31, 2008. Including minority interests, net profit rose 3 per cent to 101 million yuan. Group revenue rose 24 per cent to 383.1 million yuan. The group completed the sale of one residential plot in Shanghai and two residential plots in Shenyang in Q1 2008, and recognised revenue of 330 million yuan and 43.6 million yuan, respectively, from the sales.

SingXpress calls off acquisition

SINGXPRESS Ltd yesterday said it has called off the acquisition of Singapore Service Residence Pte Ltd, SingXpress International Pte Ltd and Anglo-French Travel Pte Ltd. The acquisition, which was to have included a shareholder's loan advance as well, was cancelled after considering the prolonged delay in completion and 'changes in the prevailing market conditions'.