Fundraising

SWF-backed Chinese water utility drops $215m unit

The exit by Beijing Enterprises Water Group, a portfolio company of Khazanah Nasional and IFC, is a sign that further consolidation may be in the cards in China’s water sector.

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Hong Kong-listed Beijing Enterprises Water Group has sold its entire 60 percent stake in a Dalian-based subsidiary to a private investor for 1.49 billion yuan ($215 million; €202 million).  

The unit, known as Bei Kong Dalian Investment Company, is involved in water-related projects in northeast China’s Liaoning Province under the build-transfer and transfer-operate-transfer models. It was a 60:40 venture between BEWG and Chinese investment firm Meishi International before the transaction. 

With two subsidiaries of the latter, Fortune Future and Honest World, respectively acquiring 31 percent and 29 percent of Bei Kong, the company is now a wholly-owned entity of Meishi International. 

The transaction allows BEWG to record a gain of about HK$7.8 million ($1.12 million; €1.06 million) before tax. The transaction offered the group an opportunity to realise its investments at a fair value, BEWG said. Proceeds of the transaction will be used for developing the company’s core businesses. 

The Chinese water utility said that it has set up a wholly-owned platform in northeast China’s three provinces as part of its efforts to restructure its activities, adding that it would now seek growth solely through the new unit.
As of June 2015, BEWG was 44 percent owned by state entity Beijing Enterprises Holdings, with Malaysian sovereign wealth fund Khazanah Nasional holding a minority stake of 4.6 percent, according to an investment document released by the International Finance Corporation. 

IFC teamed up with 13 commercial financial institutional investors to provide a $300 million financing package for the group in December 2015, followed by a $398.8 million Susuk issue by Khazahnah exchangeable into its shares of BEWG last September. 

This latest deal is a further hint that China’s water sector has entered a phase of consolidation. Two weeks ago, Singapore utility Sembcorp completed its divestment of a water facility in Jiangsu in central eastern China, selling its entire 49 percent stake in Yancheng China Water Company to Yancheng City Municipal Utilities Investment Company for 260 million yuan.