Keppel Infrastructure Trust (“KIT”) is a diversified business trust listed on the Singapore exchange, and it has approximately SGD 4.5b in assets under management (“AUM”) as at the end of last year. The issuer, Keppel Infrastructure Fund Management Pte Ltd., is the Trustee-Manager for KIT and is a wholly-owned subsidiary of Keppel Capital Holdings Pte. Ltd.
KIT serves a large customer base including government agencies, commercial & industrial enterprises, multinational corporations and retail customers in across Asia Pacific. Its infrastructure portfolio includes power and electricity transmission, manufacturing and distribution of essential chemicals, waste treatment and water purification, town gas production, as well as the storage of petroleum products. As such, KIT plays an important role in ensuring a sustainable future and economic growth in Singapore through the provision of electricity and gas, managing waste and enhancing water security.
Proceeds from this bond offering will be used to refinance the existing borrowings of the Group, finance the general working capital purposes and capital expenditure requirements, as well as to finance potential acquisitions or investments and asset enhancement works. The issuer and new issue are expected to be unrated. The 5-year SGD senior unsecured bond is fixed rate, and it is expected to mature on 5 May 2027. The new issuance may be redeemed at par due to the termination or de-listing of KIT or due to taxation reasons. The final price guidance (“FPG”) of the bond is 4.11%, tightening 24 basis points (“bps) from its initial price guidance of 4.35%.
For the financial year ended 31 December 2021 (“FY21”), revenue for the Group increased by 5.1% year-on-year (“YoY”) to SGD 1.58b on the back of a record performance from its subsidiary, Ixom Holdings Pty Ltd (“Ixom”), as well as higher contractual availability from the Keppel Merlimau Cogen Plant (“KMC”). Nonetheless, FY21 EBITDA fell slightly by 3.2% YoY to SGD 317.6m largely due to the under-recovery of fuel costs. The voluntary administration and derecognition of its Australian subsidiary Basslink also negatively impacted its net cash generated from operating activities, causing it to fall 26.4% YoY to SGD 249.3m for FY21.
Despite the supply chain constraints caused by the pandemic, KIT’s FY21 results still remained resilient, largely supported by a strong growth among its assets. As a result, the Group announced a distribution per unit (“DPU”) of 3.78 cents, marking the first increase from the 3.72 cents annual payout since 2016. Going forward, KIT will continue to prioritise on its growth by shifting towards low-carbon and digital economy. Its latest investment in Aramco Gas Pipelines Company in February 2022 is also expected to increase its total AUM to ~SGD 4.6b, providing stable quarterly payments from one of the world’s largest natural gas reserves.
Moving on to its credit profile, KIT’s leverage improved notably following the derecognition of Basslink, thus providing a comfortable debt headroom for it to pursue acquisition opportunities in the future. Net gearing fell from 32.1% in FY20 to 20.3% in FY21, while its current ratio also improved to 2.36 from 0.96 a year ago. The Group has a strong liquidity position as its cash position of SGD 817.1m is more than sufficient to cover its short-term borrowings of ~SGD 126m. We estimate its FY21 EBITDA coverage ratio to be ~2.2x, which still remains healthy despite the decline in net cash from operating activities. Notably, the Group also has ~93% of loans hedged in terms of its interest rate exposure so as to manage the interest rate volatility.
As for relative valuation, we think that the new issuance is fairly priced. Among KIT’s existing bonds, the KITSP 3.000% 01Dec2026 Corp (SGD) is currently yielding ~3.79% with 4.6 years left to maturity. As such, the newly priced bond offers a yield pickup of ~32 bps with a difference of 0.4 years to maturity. Investors may consider buying the new bond to benefit from the higher yields compared to the existing 2026 bond.
Declaration: For or specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.
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