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KKR investing into water treatment

KKR & Co LP, one of the largest private equity firms in the world, made a $40 million follow-on equity investment in United Envirotech Ltd, showing great confidence in the huge Chinese water treatment market.

KKR is offering S$0.50 ($0.40) for each share of the Singapore-listed recycling and water treatment company, which focuses on the Chinese market. The offer represents an 8.5 percent premium to the volume weighted average share price for the past 30 trading days, the two companies said in a statement.

At that price, the $40 million investment would give KKR a stake amounting to 20.6 percent of the issued shares, according to Thomson Reuters’ data.

The investment will be used to fund the acquisition of water treatment plants, upgrade existing plants and for the company’s working capital.

In 2011, KKR subscribed $113.8 million worth of convertible bonds issued by UEL, representing a 38.4 percent stake on a fully diluted basis if the bond is fully converted.

“(The latest investment) is a clear indication that KKR is satisfied with UEL’s performance and is very confident in our growth potential. KKR has truly demonstrated to be a long-term, value-added partner since their original investment,” said Lin Yucheng, chairman and CEO of UEL.

UEL chalked up record revenue of S$85.3 million in 2012, up 9.4 percent year-on-year from the S$78.0 million achieved in 2011.

David Liu, CEO of KKR Greater China, said: “UEL has an outstanding management team under Dr Lin, with deep industry knowledge and strong local expertise. We look forward to continuing to utilize our global network and local expertise to support UEL’s long-term growth and contribute to the overall environmental initiatives in China.”

KKR’s assets under management were worth $66.3 billion as of Sept 30, 2012.

Between 2008 and 2011, there were 47 venture capital and private equity deals in the Chinese wastewater treatment sector, with an investment amount totaling $852 million, according to the Beijing-based Zero2IPO Group.

The annual production value of each of the 10 largest water companies in China is significant – between 2 billion yuan ($317.71 billion) and 3 billion yuan – but their total market share is small, showing that investments in the sector have great potential, a ChinaWaterNet report said.

At the end of 2011, there were more than 3,000 urban wastewater treatment plants in China, the report said.

Large water companies in China include Beijing Capital Co Ltd, Beijing Enterprises Water Group Ltd, Veolia Water Ltd and Beijing Origin Water Technology Co.

Zhao Gang, a partner at Singapore-based venture capital firm SBCVC, said many opportunities are emerging in the sector in China. Industrial companies have strong demand for water treatment services.

The amount invested in the construction of urban wastewater treatment and recycling facilities is expected to total 430 billion yuan during the period of the 12th Five-Year Plan (2011-2015), according to a statement released by the State Council in May 2012.

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