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Why Has CitySpring Infrastructure Trust Been Halted From Trading?

Last Friday morning, CitySpring Infrastructure Trust (SGX: A7RU) and Keppel Infrastructure Trust (SGX: LH4U) had both requested for a trading halt pending the release of an announcement.

The halts aren’t lifted yet, and so far there haven’t been any official announcements. But, local newswire Today had reported that both trusts “are exploring a merger.” It should be noted though that no decision has been finalised yet at the time of writing (8:55am, 17 November 2014).

Brief Introduction

CitySpring Infrastructure Trust was established with the principal objective of investing in a diversified range of infrastructure businesses that could be involved with utilities, transportation, and communications, amongst others. The business trust’s current portfolio comprises of four assets, of which the City Gas Trust is the most important as it generated three quarters of the trust’s total revenue for the financial year ended 31 March 2014.

Meanwhile, Keppel Infrastructure Trust’s mandate is to invest in energy and environmental infrastructure assets in Singapore, the Asia-Pacific, and Europe. According to its website, the business trust currently owns a total of three assets – two waste-to-energy plants and one Newater plant.

Synergies at work

Besides the tell-tale sign given in their names, the brief introduction for both trusts has made it easy to see that they both have a very similar focus on infrastructure assets. In the Today article I referenced earlier, it quoted CMC Markets strategist Desmond Chua as saying:

“There are synergies combining the two companies that Temasek aims to realise. As a bigger company, it will probably be more accessible to investors. It will also become a one-stop utility”.

A successful merger would form an entity worth in excess of S$1.4 billion based on their current market capitalization. Consequently, their combined operations can probably reap benefits in the future if they are able to capitalize on potential economies of scale given their size.

In my opinion, this announcement can benefit CitySpring Infrastructure Trust since it has been loss-making over the past few years and a merger might help improve its financial performance through the infusion of a fresh business perspective. CitySpring Infrastructure Trust’s units last changed hands at S$0.515 cents, giving it a price-to-book (PB) value of 2.5. Meanwhile, Keppel Infrastructure Trust’s last-traded price was at S$1.045. At that price, the trust is valued at 1.1 times its book value.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.