Brokers' take: UOB Kay Hian keeps 'buy' on Sembcorp, sees possible IPO for Indian units

THE CONSOLIDATION of Sembcorp Industries' India portfolio under a single entity "sounds like preparation for an initial public offering (IPO)", UOB Kay Hian noted on Monday, adding that it is maintaining its "buy" call for the listed group on expectations that a spin-off will help to lighten the group's balance sheet.

The planned IPO, which is said to be planned for this year, could raise as much as US$500 million to US$600 million. Investment banks Credit Suisse and Axis Capital would manage the sales of the IPO shares, the brokerage said, citing media reports in India.

Sembcorp Industries said before Monday's trading hours that three transfers of stakes has seen its thermal and renewable energy businesses consolidated under one entity, Thermal Powertech Corporation India (TPCIL). TPCIL has also been renamed Sembcorp Energy India Limited (SEIL).

"We reckon the proceeds will likely be used to pare down debts and reduce interest expense (that) makes up 25 per cent of the power plants' annual expense," UOB Kay Hian said in its research note.

The brokerage kept its target price unchanged at S$3.87. The stock was trading at S$3.31 as at 10.47am on Monday, up 2.8 per cent or nine Singapore cents.