[SINGAPORE] Keppel Infrastructure Trust (KIT)’s S$119 million acquisition of Global Marine Group (GMG), a subsea cable maintenance and installation vessel operator, marks its first foray into to the digital infrastructure segment – a segment they want more exposure to.
This represents an about 46.7 per cent interest in the group, and the move is due to the “strong tailwind behind this particular industry”, Kevin Neo, chief executive of the manager, said at a dialogue with the Securities Investors Association Singapore (Sias) on Oct 30.
The transcript of the session was made available in a bourse filing on Saturday (Nov 1).
The acquisition will be funded through a combination of internal funds and debt, with no equity fundraising required.
KIT will redeploy divestment proceeds from Philippine Coastal Storage and Pipeline Corporation (PCSPC) and the sale of a partial stake in Ventura, said Raymond Bay, KIFM’s chief financial officer.
The transaction is expected to be accretive to distributions per unit (DPU), with a 4.6 per cent DPU accretion on a pro forma basis rising to 6 per cent upon future capital injection.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
GMG operates specialised vessels that maintain and install subsea fibre optic cables. The company holds a 31 per cent market share in the maintenance market, and 20 per cent in the installation market globally.
The business model provides stable cash flows through long-term maintenance zone contracts of five to seven years, and charter contracts of two to four years on a take-or-pay basis.
“These contracts provide for defined annual payments regardless of actual vessel utilisation, leading to high visibility on cashflows and stability,” Neo said.
SEE ALSO
GMG’s contracts also include pass-through provisions for operational costs such as fuel and consumables, protecting the business against cost inflation. “Even if the vessels are not used, we will get paid,” Neo added.
The acquisition values GMG at an implied enterprise value-to-earnings before interest, taxes, depreciation and amortisation ratio of 6.7 times, below both the mean and median ratios of comparable companies at 7.3 times and 8 times, respectively.
In addition, GMG’s implied price to equity ratio of 9.8 times is within the range of the ratios of comparable companies and lower than both the median and median ratios of 13.8 times and 11.4 times, respectively.
Neo acknowledged operational risks but said GMG’s experienced management team and well-maintained fleet mitigate concerns about vessel availability. High barriers to entry, with new vessel builds requiring two to four years and significant capital, also reinforce GMG’s competitive position.
“We are very focused on the fundamentals of KIT’s portfolio and are committed to creating long-term value for unitholders,” said Neo.
“We will continue to pursue strategic acquisitions that are aligned with secular growth trends of energy transition, rapid urbanisation and digitalisation.”
An extraordinary general meeting to approve the GMG acquisition will be held on Nov 11.
Units of KIT closed S$0.005 or 1.08 per cent lower at S$0.46 on Friday before the announcement.
