Keppel Infrastructure Trust confirms Ixom purchase at A$777 million

KEPPEL Infrastructure Trust said on Thursday that it is buying Australian chemicals group Ixom for A$777 million (S$775 million), in a deal that puts Ixom's enterprise value at A$1.1 billion.

After more than a month of market speculation, the manager confirmed that the trust is taking the chemicals supplier off the hands of management sellers and funds managed by the Blackstone Group, which paid A$750 million for the business in 2014.

The acquisition - set to be completed in Q1 2019, but only if given the green light by unit holders and the authorities - will be funded by debt at the outset.

Financing would come from a bridge facility of up to S$750 million, as well as a five-year senior term loan of A$532 million that will also go towards paying off an existing Ixom loan of A$432 million.

But the manager added that "it is envisioned that a portion of the debt will be paid down with the proceeds from an equity fund-raising" at a later date.

DBS analyst Suvro Sarkar had previously told The Business Times that the trust's debt ratios do not leave headroom of more than S$300 million, so a price tag of more than A$1 billion for Ixom "could involve significant equity fund-raising" for the trust.

Trust sponsor and Keppel Corp unit Keppel Infrastructure Holdings, which now owns 18.2 per cent of the units, has undertaken to take part in the equity fund-raising and maintain its stake, said the manager.

The acquisition is expected to grow Keppel Infrastructure Trust's portfolio - which comprises mainly utilities assets in Singapore and Australia - to S$5.1 billion, from S$3.8 billion as at Sept 30.

Ixom makes and distributes water treatment chemicals, and also deals in bulk and packaged chemicals, such as sulphuric and nitric acids, in Australia and New Zealand. Its products are also used in industries such as agriculture, mining and construction.

According to the manager, Ixom's audited net profit after tax was A$51 million for the year to Sept 30, 2017, while its earnings before interest, taxes, depreciation and amortisation (Ebitda) was A$128 million for that same period.

Meanwhile, Ixom reportedly clocked an unaudited net profit after tax of A$33 million for the nine months to June 30, while Ebitda was A$93 million in the same time.

Matthew Pollard, chief executive of the manager, said in a statement that the proposed deal would enhance the stability of distributions for unit holders in the long term and would give the trust a foothold "in this stable sector of water treatment as well as industrial and specialty chemicals distribution".

For illustrative purposes, the deal would have left distribution per unit (DPU) for the nine months to Sept 30 unchanged at 3.72 Singapore cents, assuming a preferential offering and the placement at an issue price of S$0.43 a unit for gross proceeds of S$600 million to repay the bridge facility.

The DPU would have dipped to 3.45 Singapore cents if the fund-raising was done with a rights issue at an illustrative theoretical ex-rights price of S$0.40 a unit and an illustrative issue price of S$0.30 a unit.

Gearing would be raised from 40.2 per cent to 41 per cent in either pro forma case, said the manager.

"Ixom's infrastructure-like business and strong position provides the trust with stable and resilient cash flows that are driven by long-term customer relationships and a large, diversified customer base comprising many blue-chip companies and municipalities," said Mr Pollard.

"In addition, through the acquisition, we augment Keppel's value proposition as a provider of solutions for sustainable urbanisation. The chemicals that Ixom manufactures and distributes are needed for daily life and many businesses."

He noted that Keppel Infrastructure Trust already uses chemicals similar to Ixom's products, in its desalination and waste water treatment assets. Those products include chlorine, sodium hypochlorite, caustic soda and hydrochloric acid.

The manager also said that the acquisition was "a logical fit" with the trust's value proposition, as SingSpring Desalination Plant and Keppel Seghers Ulu Pandan NEWater Plant are already involved in the water treatment value chain and have operational and safety procedures similar to Ixom's.

It added that the Ixom deal would leverage the knowledge from the trust's management and business model for Singapore gas provider CityGas, and called Ixom a mature and profitable defensive business with a dominant market position, diversified customer base and limited technology risk.

According to the announcement from the manager, the planned Ixom deal presents the trust with the "unique opportunity to acquire a strong and stable infrastructure business", while the target group's business was said to be "supported by favourable industry fundamentals", such as an anticipated rise in global demand for products such as milk that are made using Ixom's chemical products.

The purchase would require the the approval of the Australian Foreign Investment Review Board and the New Zealand Overseas Investment Office.

Unit holders will also need to say yes to both the acquisition and the equity fund-raising through separate ordinary resolutions, at an extraordinary general meeting that has yet to be called.

Keppel Infrastructure Trust's purchase vehicle can also terminate the share sale agreement if there is a material adverse change that cannot be fixed to its reasonable satisfaction by March 31, 2019.

The counter last traded flat at S$0.46, before a trading halt was called ahead of the announcement.