Vol 12, Issue 8 (August 2011)

Need to know

• RE: STRUCTURING

  It was a shocking month for Veolia Environnement, as shares in the world’s largest water company lost more than 40% of their value within the space of two weeks, largely owing to a profit warning and a poor set of half-year results at the start of August.

• EASTERN PROMISES

  The Samsung-led developer consortium responsible for the 160,000m3/d wastewater BOT at Muharraq in Bahrain has singled out the Export-Import Bank of Korea for its crucial help in bringing the project to the cusp of financial close.

• FILTER TIPS

  The acquisition of Norit’s Clean Process Technologies group by Pentair has not translated into immediate stock market success, as the shares underwent a significant sell-off this month, sparked by a drop in earnings predictions for the third quarter.

• HIDD AND SEEK

  International Power is preparing the sale of a 30% stake in the Hidd power and water plant, the 400,000m3/d & 910MW IWPP that provides some 75% of Bahrain’s water. 30% owner Sumitomo has first refusal to buy the stake, which it has confirmed it will be permitted to hold under Bahraini law.

Analysis

• Positioning for the new economy

  Christopher Gasson looks at how the global economy is evolving, and where the opportunities are going to be.

• David Lloyd Owen - Reconciling numbers: do different agencies have different agendas?

  Developing a spreadsheet to estimate how much money ought to be spent on water and wastewater to 2050 has had a number of fascinating, if unintended, consequences.

• CHART OF THE MONTH - Bad months on the markets: how water utilities performed

  This month’s chart looks at the share prices of different water stocks during a market meltdown. On the left, the performance of American Water, Veolia and Sabesp during the tumultuous month of September 2008 (when Lehman went under) is shown.

• Takeover targets escape the contagion

  Investor-owned water utilities provided the best defence strategy against the recent market meltdown. Nevertheless, the top three performers in the GWI Global Water Index this month were all the subject of takeover bids.

General

• Veolia shares tank as key margins fall

  The world’s largest water company spooked investors with additional write-offs and higher costs at half-time.

• Suez half-year delight for investors

  The Agbar acquisition is looking better and better for the French company.

• NIB looks to diversify water lending

  A lack of bankable projects in its core operating area has stifled the water lending activities of the Nordic Investment Bank. Now, it is looking eastwards to diversify its portfolio.

• The rain in Spain means trading’s off again

  With reservoirs in Spain’s agricultural heartland at record highs, the development of a formalised water trading market may not seem a priority. A recent conference in Madrid assessed the prospects.

• Water trading deals in mainland Spain

  Sindicato de Comunidades de Regantes del Acueducto Tajo-Segura (SCRATS) paid €6 million a year (€0.19/m3) for four years from June 2007 to purchase 31 million m3/ year from irrigators in the Tagus river basin for agricultural use.

• AdP’s first-half profits quadruple

  An improved bottom line at the Portuguese state-owned water operator will please prospective investors. Municipal debtors remain a problem.

• Leverage to remain low at Northumbrian

  CKI’s £4.8 billion public-to-private bid for Northumbrian Water is unlikely to raise leverage at the operating company. The change of control may trigger some debt refinancing.

• Acquisition bolsters SKM’s LatAm water offering

  The acquisition of IRH will enhance SKM’s presence in the mining sector. It could provide an entry point into the growing Chilean desalination market.

• Pentair’s clean process of integration

  The market initially applauded Pentair’s acquisition of Norit’s Clean Process Technologies division, but a downbeat Q3 forecast has caused the shares to tumble. The pressure is on to maximise the benefits of the acquisition.

• Where is Pentair Inc. coming from?

  After many years as a conglomerate, the Minneapolis-based group is now focused on two markets: water and electrical enclosures.

• bcIMC to boost its stake in Aquarion to 45%

  Fresh from upping its stake in Thames Water, British Columbia Investment Management is close to relieving Macquarie of a portion of its interest in Aquarion. The deal will simplify the ownership structure.

• Rexnord boosts water business ahead of initial public offering

  The acquisition of VAG will broaden the footprint of Rexnord’s water business. It represents an early exit for the company’s private equity owner.

• Accessing Exim Bank’s great wall of cash

  Concessional Chinese finance is boosting investment in Africa’s water sector. It is only the tip of the iceberg.

• A sure Sino’ things to come

  Chinese state-owned Sinohydro’s $2.7 billion IPO will raise capital to invest in new projects, including water supply initiatives.

• Accounting for the sludge factor in China

  Chinese water companies have been adopting a range of strategies to get into the sludge treatment market. What’s the big attraction? Kathy Liu reports.

• Untying the Chinese contortionist

  Charles Bodhi attempts to unravel the Gordian knot of Chinese water tariffs.

• Cardno plays its cards right in water

  The acquisition of two environmental remediation companies in the US last year helped the Australian consultant engineering firm to improve its bottom line by 56%. It wants to double its water revenues over the next five years.

• Helena Water closes Mundaring BOT financing

  The financial close of Water Corp’s first privately financed water project bodes well for the future procurement of greenfield water assets in Western Australia. The debt package came with substantial refinancing risk attached.

• Market waiting for Hidd IWPP stake sale

  Regulations have forced IP to sell off a stake in the Bahrain IWPP. If co-owner Sumitomo chooses not to buy in, it is likely to be a key target for financial investors hungry for stable returns in the troubled region.

• Dow puts faith in RO for new Saudi venture

  The US chemical company is using reverse osmosis to kick-start its new manufacturing park in the industrial city of Jubail. It is a sign of faith that the membrane desalination market in the Middle East is set to grow.

• Uprisings force Severn Trent services rejig

  The UK utility has ceased business development and moved staff out of its services division in the Middle East because of the chaos caused by the Arab Spring. An improvement in the products market might be a consolation.

• Saudi O&M bids point to city JV rollout

  A trio of operations and maintenance contracts are aimed at marking the starting point for next year’s plans by the National Water Company to set up partnerships with the private sector.

• Muharraq planners praise Kexim support

  As the Middle East’s first water BOT since the Arab Spring nears financial close, the loan pricing has become a key issue. What is clear is that the project would have been impossible without government-backed credit support.

• Where next for MED?

  The Saudi industrial city of Yanbu has become the epicentre of EPC procurement. It is also at the frontline of the desal technology war.

Brief

• EUROPE WATER IN BRIEF

  Ysro B.V. has sold its remaining 18% stake in BWT AG, bringing the free flost up to 73%.

• AMERICAS WATER IN BRIEF

  Select Energy Services continues to strengthen its presence as a water solutions provider to the Marcellus and Haynesville Shales.

• ASIA WATER IN BRIEF

  Shares in Singapore-listed ‘orphan stock’ United Envirotech jumped 13% on the news that private equity firm Kohlberg Kravis Roberts plans to invest $113.8 million in the company by subscribing to a new five-year convertible bond.

• MIDDLE EAST WATER IN BRIEF

  Qatari water provider Kahramaa has set a target date of 15 September to conclude a tariff deal with the Qatar Electricity and Water Company that will allow QEWC to proceed with its programme of EPC desalination tenders

Market Profile

• Indonesia’s innovation in infrastructure

  The government of Indonesia has taken a series of steps to boost investor confidence ahead of significant private investment in its infrastructure sector. Rama Rastogi reports from Jakarta.