Keppel Infrastructure Trust to Acquire 39% Stake in Jurong Island Power Plant for S$128.1 Million

Key facts

• Keppel Infrastructure Trust (KIT) announced the proposed acquisition of a 39% stake in Keppel Merlimau Cogen Plant for S$128.1 million.
• The plant is located on Jurong Island, Singapore's industrial hub.
• KIT has secured a $100 million loan agreement to finance the acquisition.
• The deal is part of KIT's expansion of its debt issuance programme.
• Keppel Corporation is divesting the stake to KIT.
• The acquisition is expected to enhance KIT's income stability and growth prospects.

A Strategic Move in Singapore's Energy Landscape

Keppel Infrastructure Trust (KIT) has announced a proposed acquisition of a 39% stake in the Keppel Merlimau Cogen Plant, a combined-cycle gas turbine power plant on Jurong Island, for S$128.1 million. The deal marks a significant step in KIT's strategy to consolidate its position in Singapore's energy infrastructure sector. The acquisition comes as KIT expands its debt issuance programme, having recently locked in a $100 million loan agreement to support the purchase. This financing move underscores the trust's confidence in the asset's long-term cash flow generation.

The Asset: Keppel Merlimau Cogen Plant

The Keppel Merlimau Cogen Plant is a key power generation facility on Jurong Island, supplying electricity and steam to industrial users. The plant is currently owned by Keppel Corporation, which is divesting the 39% stake to KIT. The transaction values the entire plant at approximately S$328.5 million. The plant's strategic location and efficient operations make it a valuable addition to KIT's portfolio, which includes other energy and infrastructure assets across Singapore and Australia.

Financial Details and Debt Issuance Programme

KIT will pay S$128.1 million for the 39% stake, with the consideration to be funded through a combination of debt and internal resources. The trust has already secured a $100 million loan agreement, indicating strong lender confidence. KIT's debt issuance programme has been expanded to accommodate the acquisition, reflecting the trust's proactive approach to capital management. The programme allows KIT to raise funds through various debt instruments, providing flexibility for future investments.

Implications for KIT's Income Stability

The acquisition is expected to enhance KIT's income stability, as the Merlimau plant operates under long-term power purchase agreements (PPAs) with creditworthy off-takers. These contracts provide predictable cash flows, reducing earnings volatility. Analysts view the deal positively, noting that it aligns with KIT's strategy to acquire assets with stable, long-term returns. The trust's distribution per unit (DPU) is likely to benefit from the incremental income, though the exact impact will depend on the final financing structure.

Keppel Corporation's Divestment Strategy

For Keppel Corporation, the divestment of the 39% stake is part of a broader asset recycling strategy. The company has been streamlining its portfolio, focusing on core businesses such as offshore and marine, energy, and urban development. The sale to KIT allows Keppel to unlock value from its infrastructure assets while maintaining operational control through its remaining stake. Keppel will continue to manage the plant, ensuring operational continuity.

Market Reaction and Broader Context

The announcement has drawn attention from investors, with KIT's units trading actively on the Singapore Exchange. The stock was among the stocks to watch, alongside OCBC, FLCT, and UltraGreen.ai. The deal reflects a broader trend of infrastructure trusts consolidating assets in Singapore's energy sector, driven by the need for stable yields in a low-interest-rate environment. KIT's move positions it to benefit from the country's growing demand for reliable power.

Outlook and Next Steps

The acquisition is subject to regulatory approvals and other conditions, with completion expected in the coming months. KIT has stated that the deal will be accretive to unitholders from the first full year of ownership. Looking ahead, KIT may pursue further acquisitions as part of its growth strategy, leveraging its expanded debt programme. The trust's ability to secure financing at favorable terms will be key to executing its pipeline of opportunities.

The bottom line

• KIT is acquiring a 39% stake in the Keppel Merlimau Cogen Plant for S$128.1 million.
• The deal is financed partly through a $100 million loan agreement.
• The acquisition enhances KIT's income stability via long-term PPAs.
• Keppel Corporation is divesting as part of its asset recycling strategy.
• The transaction is subject to regulatory approvals and is expected to close soon.
• KIT's expanded debt programme positions it for further growth.