JBIC is keen to have Japanese firms gain international exposure to the growing water industry, where it already has advanced technologies in water treatment. Hyflux, which has already been purchasing equipment from Japanese suppliers, only stands to gain from having a strong financier for its water projects.
JBIC is a policy-based financing institution which has a current capital of JPY985.5 billion. Its mission is to contribute to the international economy and promote Japanese industries. Under its recent initiative to support environmental sectors, it is committed to provide finance support of 5 billion USD for the next two years.
Hyflux will potentially be able to replicate globally the financial models for its Algerian projects, whereby JBIC will provide the project financing and equity for its water projects while Hyflux executes and profits from the EPC and O&M portions. Such a model suits Hyflux since it reduces its equity contribution, and removes its balance sheet constraints when taking on new projects.
We await further development on this front. Should this be materialised further, contracts win momentum could accelerate again in China where Hyflux has been hesitant to pick up new projects due to balance sheet constraints. We maintain our SOTP target price.
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