I did some more figurative analysis on K-Green trust and it would seem that the yield on its 3 assets is all very very low.
I post some question to K-Green Trust Investor relations:
My understanding is that K-Green Trust do not own the assets but is a 15 year concession with the option to renew for another 15 years. I believe the concession for the other 2 assets is longer.
Based on accounting, the concession will need to be amortized throughout this 15 years. How does K-Green trust then maintainened the NAV of the trust? If NAV is not maintain wouldn’t it be paying back the investors original assets back to them across 15 years?
Here is their first reply:
Thank you for your email.
We would like to clarify that the three existing assets, two Waste-to-Energy Plants and one NEWater Plant, are indeed owned by K-Green Trust (KGT). These plants have long-term concession agreements with the Singapore Government of between 15 years to 25 years. The term of the incineration services agreements entered into with NEA for Senoko Plant is 15 years, while for the Tuas Plant, it is 25 years. The term of the NEWater agreement with PUB for the Ulu Pandan Plant is 20 years. For the Senoko Plant, the option to extend the agreement for another 15 years lies with NEA.
We would also like to assure you that the Trustee-Manager of KGT is focused on providing long-term, regular and predictable distributions to its Unitholders. While the three existing Singapore plants are contributing steady cash flows to the Trust, KGT will also be seeking additional new assets so that the Trust can continue to maintain the level of distributions over the longer term, when the concession agreements of the three plants end.
As stated in the Introductory Document issued on the listing of KGT dated 31 May 2010, Keppel Integrated Engineering, the sponsor of KGT, has granted KGT rights of first refusal to four assets. They are the three district cooling system (DCS) plants under Keppel DHCS Pte Ltd, and a 22% stake in a waste-to-energy plant in Sweden. KGT is looking to acquire the three DCS plants in the near term.
We hope the above clarifies.
For me I don’t think it answers my question directly that whether I have a misunderstanding regarding the way the trust works. For me the NAV is still not answered.
So I probe further:
Appreciate the reply. How is K-Greens favored leverage ratio?
From my analysis, K-Green is only paying out of its current concession as assets. The yields of the 3 assets are 3.5%. 2.5% and 1.2% respectively for the duration of the individual concession with cashflow growing at 3% growth rate.
With assets yield such a low returns, the current 7% yield is paying out of assets. Any new assets acquistion will still come from rights issues or placements, which dilutes the share holders.
At the end of the day, the shareholders seem to be getting a very bad deal even though on the surface the yield advertise is 7%.
What is K-Green’s view on this issue?
The final reply:
Thank you once again for your view on K-Green Trust.
On your comment regarding acquisitions of new assets, the Trust currently does not have any gearing, which will facilitate its ability to utilise debt financing for any future acquisitions. Whether the Trust uses debt or equity to finance its future acquisitions will depend on the availability and cost of capital at the time it makes the acquisitions.
On the forecast yield of 7%, we are unable to add on to what the Trust has disclosed so far.
I thought they answered the first part of the question well, but averted the second question. at most they could tell me my calculations are fraud or wrong but that totally left me dissatisfied.