Keppel Infrastructure Trust targets trebling of portfolio to S$18b over next decade

With Basslink burden offloaded, the infra-focussed business trust looks to Keppel ecosystem for opportunities in renewable energy, logistics

Paige Lim
Published Mon, Oct 3, 2022 · 05:50 AM

KEPPEL Infrastructure Trust (KIT) has expanded its portfolio under the watch of Jopy Chiang, who assumed the role of chief executive at KIT’s trustee-manager just over a year ago.

The trust has secured interests in a pipeline of wind assets in Europe, on top of venturing into Saudi Arabia and South Korea – broadening its reach outside its existing markets of Singapore, Australia, New Zealand, and the Philippines.

It is also reshaping its strategy to ensure it can take advantage of new opportunities. In April, the trust reorganised its portfolio into three key business segments: energy transition, environmental services, and distribution and storage.

“KIT is transforming as a portfolio,” said Chiang, who came to KIT from Keppel Capital. “We see a lot of strong momentum and opportunity in the decarbonisation megatrend globally… There was a repositioning of the trust to capitalise on a lot of the opportunities, and also to continue to grow on a new foundational footing.”

In July, KIT marked its first move into the renewable energy sector and maiden acquisition in Europe with a proposal to invest in wind farms alongside Keppel Corporation. The two companies have formed a joint venture to invest 160 million euros (S$226 million) in Wind Fund I. The latter will, in turn, co-invest in a diversified portfolio of wind projects across Norway, Sweden and the United Kingdom. KIT’s investment will come to 131.2 million euros.

This was followed, in August, by another joint investment to take a stake in a German offshore wind farm. KIT will pay 250.1 million euros for an effective stake of 20.5 per cent in the project.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

VIEW ALL

Also in August, KIT announced its participation in a Keppel consortium to buy South Korean waste management company Eco Management Korea Holdings. The consideration for the deal is estimated at 626.1 billion won (S$666.1 million), of which KIT’s share is 325.6 billion won.

With these three deals, Chiang said KIT’s assets under management (AUM) would rise 36 per cent to S$6.1 billion. He aims to grow the trust’s portfolio to S$18 billion within the next decade. Renewable energy investments are expected to make up 25 per cent of its “equity-adjusted AUM”, up from the current 10 per cent.

Keeping house

Chiang’s appointment has coincided with KIT’s first increase in its full year distribution per unit (DPU) since FY2016. For FY2021, KIT paid out S$0.0378 per unit – up from S$0.0372 in FY2020.

The trust also reported a 2.7 per cent year-on-year increase in its DPU for the first half of FY2022, despite a lower distributable income. This was due to “higher finance costs related to the issuance of new capital in the form of debt securities”, Chiang said.

He added that KIT is “quite comfortable” maintaining its growth in distributions, pointing to a US$250 million investment in Aramco Gas Pipelines Company this February that will contribute to income over the course of this year.

It has taken Chiang a “fair bit” of housekeeping to get here. In particular, KIT put its embattled Australian subsea cable subsidiary Basslink under voluntary administration in November 2021.

What lessons have been learned? “With infrastructure, you cannot ignore the regulatory and political risks for investee companies,” he said. “It behoves us as a manager to have boots on the ground, to have really strong oversight of our portfolio companies.”

The move has also freed up management bandwidth to focus on growing KIT’s portfolio by leveraging the Keppel ecosystem, which Chiang said gives the trust an ability to secure investments in “very attractive areas” and invest alongside players that are “multiple times larger”.

As an example, Chiang points to the commercial ties that led to KIT’s investment in Wind Fund I. The fund will invest in projects sponsored by Norwegian power producer Fred. Olsen Renewables - a customer of Keppel’s offshore and marine arm.

KIT also intends to acquire from its sponsor Keppel Infrastructure Holdings a 50 per cent stake in the Keppel Marina East Desalination Plant.

“With all these recent acquisitions, we’ve demonstrated that we’re working with different pockets of capital; that is, we’re working either with the parent company Keppel Corp, or we’re working with another pool of capital within Keppel Capital.”

Rising yield

In spite of Chiang’s efforts, however, units of KIT have fallen 1.8 per cent over the past year. They closed at S$0.54 on Friday (Sep 30), giving the trust a historical yield (based on the FY22 DPU) of 7 per cent.

KIT’s high yield makes it challenging to acquire new assets that are both DPU- and yield-accretive.

Chiang, however, said KIT has shown “rigour and discipline in really sieving out and identifying the best returning investments that fit within the portfolio”, and added that the trust has “raised about a billion of dry powder in a low interest rate environment, at a cost of about 3 to 4.75 per cent”.

KIT issued S$300 million in perpetual securities in June 2021, and S$250 million in notes due 2027 this May. As at Jun 30, the trust had a gearing ratio of 31.1 per cent.

Chiang is optimistic of growing KIT’s asset base in new sectors amid the challenging macro environment.

The digital infrastructure space, for one, is an “exciting sector that will benefit from the theme of decentralised energy management”, he said. The trust is currently looking at a smart metering opportunity in Australia and New Zealand.

“We will very carefully navigate and tread in the many months to come,” Chiang added. “But we see very compelling buying opportunities in this mix of uncertainty, and that’s where we would like to focus our investment activities.”

KEYWORDS IN THIS ARTICLE

READ MORE

BT is now on Telegram!

For daily updates on weekdays and specially selected content for the weekend. Subscribe to  t.me/BizTimes

Companies & Markets

SUPPORT SOUTH-EAST ASIA'S LEADING FINANCIAL DAILY

Get the latest coverage and full access to all BT premium content.

SUBSCRIBE NOW

Browse corporate subscription here