Asia Water seeks second listing in 2012

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The next move in Shanghai Industrial’s game of water chess will be to float a portion of Asia Water on the Hong Kong stock exchange. It also plans to move into desalination.

Shanghai Industrial Holdings Limited (SIHL) plans to float one of its water subsidiaries, Asia Water Technology, in Hong Kong by the end of this year, vice president Zhou Jun announced at a conference in Beijing at the end of March. 

A dual listing for Asia Water – which is already traded on the Singapore exchange – forms part of SIHL’s strategy to become one of the top three largest water investment companies in China by capacity by 2013. The current leaders are Beijing Capital and Beijing Enterprises Water, both of which have stakes in projects with a capacity of over 10 million m3/d.
 
Zhou indicated that SIHL will expand in scope as well as size: “We hope that in the coming two years, we can diversify our water platform from water supply to seawater desalination,” he said, adding that two further acquisitions of water companies are planned over the next year.
 
Although SIHL has not yet disclosed the expected size of the flotation or the indicative timetable, Alvin Ng of Hengtong Securities in Hong Kong explained that dual listings of this nature usually take about 6-9 months to complete, making a 2012 offering a possibility. “Although approvals from regulators can be lengthy, a Singapore-listed company usually encounters less resistance,” he told GWI.
 
The dual listing strategy echoes that of project developer Sound Global, which listed first in Singapore and then transferred 18% of its existing share capital to the Hong Kong stock exchange in September 2010. Sound Global was motivated by the relative premium accorded to water stock valuations in Hong Kong versus Singapore.
 
SIHL’s stake in Asia Water was reduced to 56.42% last August, following the acquisition of 20.78% of the company by China Environment Conservation Investment Corporation (CECIC) for HK$168 million (US$22 million). 17.99% of the company is publicly traded.
 
CECIC’s investment in Asia Water is part of a web of transactions tying together its water interests with those of SIHL. The two companies signed a strategic cooperation framework in early 2011, which led to CECIC making a capital injection of RMB103 million (US$16.3 million) into General Water last July. This made CECIC the majority shareholder of General Water, with 52.5% of the equity, leaving SIHL with 47.5% (see chart above).
 
Asia Water’s business has strengthened rapidly over the last year, mostly due to the injection of assets from United Environment, another of SIHL’s water subsidiaries, in October 2011. This effectively doubled Asia Water’s capacity from 1 million m3/d to 2 million m3/d (see chart, left).
 
Asia Water acquired SIHL’s 60.4% stake in United Environment for RMB483 million (US$77 million) last year, and a further 15.1% from Hong Kong Jinhaide Holdings for RMB121 million (US$19 million), giving it 75.5% of the equity.
 
The consolidation of United Environment’s accounts allowed Asia Water to record a net profit of RMB110 million (US$17 million) in 2011 on revenues of RMB519 million (US$82 million), up 400% and 84%, respectively, year-on-year. This is a dramatic turnaround from a loss of more than RMB180 million (US$28.5 million) in 2009.
 
General Water and Asia Water both focus primarily on sewage treatment and water supply, and have some overlapping geographies, such as Hubei and Zhejiang. Last year, General Water acquired the 1 million m3/d Xiangyang water supply project in Hubei, which alone equals 50% of Asia Water’s total capacity.
 
SIHL has not confirmed whether General Water’s assets will be rolled into Asia Water prior to the listing. “Although SIHL may at some point inject General Water’s assets or businesses into Asia Water, there does not appear to be a timetable or a concrete plan. For now the focus appears to be getting a secondary listing for Asia Water in Hong Kong,” Ng commented.